1. business and industrial
2. energy
3. oil

KENCANA AGRI LIMITED
ANNUAL REPORT 2014
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KENCANA AGRI LIMITED
Registration No. 200717793E
www.kencanaagri.com
SINGAPORE
36 Armenian Street
#03-02
Singapore 179934
INDONESIA
Kencana Tower 9th Floor
Business Park Kebon Jeruk
Jalan Raya Meruya Ilir No. 88
Jakarta Barat 11620
Indonesia
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TOWARDS
SUSTAINABILITY
Corporate Information
Corporate
Structure
BOARD OF DIRECTORS
REMUNERATION COMMITTEE
COMPANY SECRETARY
Mr. Henry Maknawi
Chairman and CEO
Mr. Sim Idrus Munandar
Chairman
Mr. Phillip Lim Lian Teng
Tengku Alwin Aziz
Vice Chairman and
Independent Director
Tengku Alwin Aziz
Ms. Ratna Maknawi
Deputy CEO
PLANTATION
▼
Sawindo Agri Pte. Ltd.
Kencana Plantations Pte. Ltd.
100%
100%
PT Sawit Permai Lestari
PT Wira Palm Mandiri
100%
100%
Mr. Kent Surya
Finance Director
Mr. Soh Yew Hock
Lead Independent Director
Mr. Sim Idrus Munandar
Independent Director
Mr. Darwin Indigo
Non-Executive and
Non-Independent Director
BULKING &
LOGISTICS
POWER
GENERATION
JOINT VENTURE
PARTNERS
Kencana Logistics Pte. Ltd.
100%
Kencana Bio-Energy Pte. Ltd.
70%
• Louis Dreyfus Commodities
PT Bumi Permai Sentosa
100%
PT Cahaya Permata Gemilang
66.5%
• Enco
AUDIT & RISK
MANAGEMENT
COMMITTEE
Mr. Soh Yew Hock
Chairman
Tengku Alwin Aziz
Mr. Sim Idrus Munandar
Mr. Soh Yew Hock
NOMINATING COMMITTEE
Tengku Alwin Aziz
Chairman
Mr. Soh Yew Hock
Mr. Henry Maknawi
COMPANY
REGISTRATION NUMBER
Kencana Agri Limited
Registration Number: 200717793E
Incorporated in the
Republic of Singapore
REGISTERED OFFICE
36 Armenian Street
#03-02
Singapore 179934
SHARE REGISTRAR
AND SHARE TRANSFER AGENT
Boardroom Corporate & Advisory
Services Pte. Ltd.
AUDITORS
RSM Chio Lim LLP
Public Accountants and
Chartered Accountants
8 Wilkie Road,
#03-08, Wilkie Edge,
Singapore 228095
Partner in Charge: Mr. Kaka Singh
INDEPENDENT VALUER
(Biological Assets)
KJPP Benedictus Darmapuspita dan Rekan
Property & Business Appraisal,
Feasibility Study, Advisory
Jalan Musi 38
Jakarta 10150, Indonesia
PRINCIPAL BANKERS
PRINCIPAL OFFICE
Contents
01 Corporate Profile
02 Business and Operations
04 Chairman’s Statement
06 Financial and Operational Highlights
11 Key Milestones
12
14
16
17
33
Sustainability and
Corporate Responsibility
Board of Directors
Key Management Team
Corporate Governance
Financial Contents
Kencana Tower, 9th Floor
Business Park Kebon Jeruk
Jalan Raya Meruya llir No. 88
Jakarta Barat 11620
Indonesia
PT Bank Negara Indonesia (Persero) Tbk.
PT Bank Mandiri (Persero) Tbk.
PT Bank DBS Indonesia
PT Bank Danamon Indonesia Tbk.
DBS Bank Ltd
Standard Chartered Bank
01
OUR VISION
OUR MISSION
To be a leading sustainable
palm oil producer and supplier
of choice for both local
and global markets.
To expand our plantation business
through sustainable and environmentallyfriendly best management practices
whilst reinforcing our responsibilty
as a good corporate citizen.
Corporate Profile
Listed on the Singapore Exchange on 25 July 2008,
Kencana Agri Limited (“Kencana” or “the Group”) is a
plantation company engaged mainly in the cultivation of oil
palms; processing of Fresh Fruit Bunches (“FFB”) into Crude
Palm Oil (“CPO”), Crude Palm Kernel Oil (“CPKO”) and
Palm Kernel Cake (“PKC”); refining of CPO and provision of
bulking, port and logistics services.
Kencana’s oil palm plantations are located mainly in Sumatra,
Kalimantan and Sulawesi regions of Indonesia. Since its
inception in 1996, the Group’s planted area has grown
rapidly to about 66,666 ha in 2014. The Group currently
has four palm oil mills with total processing capacity of 230
tonnes per hour and two kernel crushing plants with capacity
of 435 tonnes per day.
To fully leverage and maximise the value chain of its
plantation assets and logistics services, the Group together
with Louis Dreyfus Commodities has built an integrated palm
oil complex in Balikpapan - comprising a palm oil refinery,
bulking terminal and a deep port.
Kencana is committed to growing its plantation business
in a sustainable - ecologically and socially acceptable
manner. It has adopted environmentally friendly practices in
its plantation development such as zero-burning and zerowaste management and is a member of the Roundtable
on Sustainable Palm Oil (“RSPO”) through its subsidiary PT
Sawindo Kencana.
The Group currently has a relatively young palm profile with
significant potential for production growth in the coming
years as its palms continue to mature and reach peak
production.
It also sells “green” electricity to the state-owned electricity
company PT Perusahaan Listrik Negara (“PLN”) and has
signed an Emissions Reduction Purchase Agreement
(“ERPA”) with the Danish Ministry of Climate and Energy to
sell Certified Emission Reduction (“CER”) credits from its
renewal biomass power plant in Bangka island.
Of its current land-bank, only 34% is planted. The Group
aims to continue to expand its planted area in a sustainable
manner over the next few years to ensure steady FFB
production growth.
Kencana is also committed to working with and improving
the social and economic welfare of the local communities
through its plasma and corporate social responsibility
programmes.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
02
Business and Operations
Kencana’s integrated value chain comprises plantations, palm oil mills, kernel
crushing plants, port & bulking facilities, logistics services and renewable
biomass power plants to support and complement our plantation operations.
Plantation
Our oil palm plantations are
strategically located in Sumatra,
Kalimantan and Sulawesi.
Processing
We have four palm oil mills and two
kernel crushing plants in Sumatra
and Kalimantan.
PLANTATION
Total Land Bank
•Nucleus
•Plasma
:
:
:
193,570 ha
174,165 ha
19,405 ha
Total Planted Area
•Nucleus
•Plasma
:
:
:
66,666 ha
53,224 ha
13,442 ha
PALM OIL MILLS
No. of Mill
Total Processing Capacity
: 4
: 230 MT/hour
KERNEL CRUSHING PLANTS
No. of Plant
Total Processing Capacity
: 2
: 435 MT/day
Products
MAIN Products
Our main products are CPO, CPKO
and PKC which are derived from the
fresh fruit bunches harvested from
our plantations, our plasma farmers,
and purchased from third parties.
Crude Palm Oil (“CPO”)
Crude Palm Kernel Oil (“CPKO”)
Palm Kernel Cake (“PKC”)
Our products are typically sold
to reputable trading companies,
refineries,
and
oleochemical
companies, among others, in
Indonesia, Malaysia and other
countries.
RENEWABLE BY-PRODUCTS
Empty Fruit Bunches, Liquid Waste,
Kernel Shells, Fibre
PRODUCTS
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
03
GROWTH
EXCELLENCE
INTEGRITY
Supporting Business
PORT & BULKING FACILITIES
Total Capacity
Our port & bulking facilities and
logistics services complement and
support our plantation operations
by providing storage facilities and
transportation for our products.
LOGISTICS SERVICES
No of Vessels
Total Capacity
120,500 MT
:
:
6
13,800 MT
Biomass Power PlantS
The “green” electricity generated by
our renewable biomass power plants
in Bangka and Belitung are mainly
sold to the state-owned electricity
company PLN. The Bangka power
plant has also been approved as a
Clean Design Mechanism (“CDM”)
PRODUCTS
project, which allows us to sell carbon
credits to international markets.
1st Plant (2005)
Location
Capacity
:Bangka
:
6.0 MW
2nd Plant (2009)
Location
Capacity
:Belitung
:
7.5 MW
BRUNEI
WEST MALAYSIA
EAST MALAYSIA
• Medan
Dumai •
:
East
Kalimantan
Kutai
• SINGAPORE
Sumatra
Bulungan
North
Sulawesi
Gorontalo
West Kalimantan
• Samarinda
Bangka
Central
Kalimantan
Central
Sulawesi
Balikpapan
Southeast Sulawesi
Belitung
South
Kalimantan
INDONESIA
Oil palm estate
Kernel crushing plant
• Jakarta
Palm oil mill
Java
Bulking terminal
Biomass power plant1
• Surabaya
Bali
Refinery, Port & Bulking
2
1
2
Joint venture with ENCO Sdn. Bhd. in Bangka & Belitung
Joint venture with Louis Dreyfus Commodities in Balikpapan
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
04
“Currently,
69%
of our nucleus oil palms
are in the immature and
young stage. With the
relatively young age profile
of average 6.4 years, the
Group expects its FFB and
CPO production growth
to continue to ramp up.”
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
05
Chairman’s Statement
Dear Shareholders
On behalf of the Board of Directors, it is my pleasure to present
Kencana’s annual report for the year ended 31 December 2014
(“FY2014”).
Palm oil prices went through a volatile period recently, affected by
export tax measures, floods in the region, falling crude oil prices,
high soybean production and then also by the Indonesian biodiesel
subsidy. The Indonesian Rupiah (“IDR”) continued to decline versus
the United States Dollar (“US$”) albeit at a much milder rate than
last year. In spite of the challenging environment, we are pleased
to have turned around from a loss of US$10.7 million last year to
report a net profit after tax of profit US$7.2 million this year.
PERFORMANCE
The Group’s revenue in FY2014 decreased by 38% to US$176.5
million, as a result of lower sales volume of CPO, coupled with
lower average selling price (“ASP”) of CPO. Sales volume of CPO
recorded a decrease of 36% to 210,657 MT and ASP decreased
from US$717 to US$708.
Gross profit increased by 33% to US$40.1 million while operating
profit increased to US$25.4 million. Overall the net profit after tax
of US$7.2 million was a significant turnaround from the loss of US$
10.7 million in FY2013. The better performance was largely due
to higher FFB production, better oil extraction rate and significantly
lower foreign exchange loss this year.
Our efforts in the past years are starting to literally bear fruits
as the areas in Kalimantan are moving into the young matured
stage. To meet this growth in FFB production we have begun the
construction of a fifth palm oil mill in Kutai with 45MT/hr capacity.
It is expected to be completed in 2H2015 and will bring our total
capacity to 275MT/hr.
In the bio-energy sector, we have concluded the joint venture
with Enco Holdings Sendirian Berhad (“ENCO”) in 2014. ENCO
brings to the operations their expertise in the biomass fuel fired
boiler systems for power generation. We are optimistic that the
partnership will contribute to our profitability in 2015, producing
green energy and driving us towards our sustainability objective.
We have firmly entrenched in our practice a Sustainability Policy
declaring our commitment to no deforestation, no burning,
protecting peat area as well as driving positive socio-economic
impact on the community. We fully embrace the principles and
criteria of sustainable palm oil production under the Indonesian
Sustainable Palm Oil schemes and are working towards the
certification of all our estates and mills.
We strongly believe that financial performance and profits have to
be balanced by sustainable practices and responsibility towards
the environment and to our future generations.
PROSPECTS AND OUTLOOK
The industry is experiencing a low price cycle and we expect 2015
to be a challenging year. Demand from leading global economies
seems to be slowing down and we may continue to see low
prices in the short term. To meet the short term challenges we are
consolidating our operations with particular emphasis on increasing
productivity. We will continue to plant new areas according to our
sustainable policy.
In the longer term, the outlook for the industry remains positive
supported by growth in global consumption. The young age profile
of our plantation will provide us with strong growth opportunities
and increased competitive edge.
DIVIDEND
In view of short term challenges ahead, the Board is not
recommending any dividend to be paid this financial year. We
sincerely appreciate your kind understanding and continued
support.
APPRECIATION
On behalf of the Board of Directors, I would like to thank all our
shareholders, customers and creditors for their continued support
and all our staff for their commitment, dedication and hard work.
We are confident of meeting future challenges and seizing
opportunities which may come our way to take the Group to the
next level of growth.
TOWARDS SUSTAINABILITY
Kencana Agri strives to develop its plantation business based
on best management practices that are sustainable and
environmentally friendly as a good corporate citizen.
KENCANA AGRI LIMITED
Henry Maknawi
Chairman and Chief Executive Officer
ANNUAL REPORT 2014
06
Financial and
Operational Highlights
Financial Highlights
Summary of results for FY2014
US$’000
FY2014
Revenue*
176,504284,052 -37.9
Gross Profit*
40,091
30,121
+33.1
Operating Profit (“OP”)*
25,422
1,772
+1,334.7
EBITDA*
24,134(3,422) n/m
Profit/(Loss) Before Tax*
13,163
(8,845)
n/m
Net Profit/(Loss) After Tax (“NPAT”)
7,223
(10,743)
n/m
Revenue decreased from US$284.1 million in FY2013 to US$176.5
million in FY2014 due to lower sales volume of CPO, coupled with
lower Average Selling Price (“ASP”) of CPO. Sales volume of CPO
decreased approximately 36% from 331,235 MT to 210,657 MT
and ASP of CPO decreased from US$717 to US$708.
FY2013
% Change
Operation Profit for 2014 increased from US$1.77 million to
US$25.4 million and Net Profit After Tax turned around from a
loss of US$10.7 million to a profit of US$7.2 million. The increase
in OP this year was mainly due to higher FFB production, better
oil extraction rate and significantly lower foreign exchange loss as
compared to 2013.
Gross profit increased 33% from US$30.1 million in FY2013 to
US$40.1 million in FY2014 and gross profit margin also increased
from 11% to 23% in FY2014.
* Excluding discontinued operations
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
07
Balance Sheet
US$’000
As at 31 Dec 2014
As at 31 Dec 2013
As at 31 Dec 2012
53,570
73,112
86,961
Non-current assets
457,425
409,306
439,508
Total assets
510,995
482,418
526,469
97,981
105,535
108,301
Non-current liabilities
240,279
211,339
190,955
Total liabilities
338,260
316,874
299,256
Shareholders’ equity
172,735
165,544
227,213
Net debt/Equity ratio (%)
131.4
118.0
85.5
Net debt/Total assets (%)
44.4
40.5
36.9
Net debt/EBITDA (x)
9.4
n/m
11.2
EBITDA/Interest expense (x)
1.9
n/m
2.7
Current assets
Current liabilities
Total assets increased by 6% from US$482.4 million in FY2013 to
US$511.0 million in FY2014, mainly as a result of:
Current Assets:
• Decrease in trade and other receivables amounting to US$16.6
million as a result of lower sales in 2014;
• Decrease in other assets amounting to US$2.5 million as a result
of reclassification of prepayments to land use right and property,
plant and equipment upon realisation during the year.
Non-Current Assets:
• Increase of US$6.3 million in property, plant and equipment.
This was mainly due to additions of US$25.0 million offset by
depreciation charges of US$7.2 million and de-recognition
of power plants as fixed assets amounting to US$9.4 million
following the divestment to Joint Venture entity;
• Increase of US$26.9 million in the value of the biological assets,
attributable mainly to expenditure incurred on new planting
and on maintenance of immature plantations, gain on fair value
changes and capitalisation of interest and depreciation;
• Increase of US$11.5 million in other receivables which was mainly
amount due from joint venture company which was previously
eliminated upon consolidation when it was a subsidiary of US$12.4
million offset by decrease in other receivables of US$900K;
• Increase of US$3.5 million in land use rights as a result of costs
incurred on conversion of the land status, offset by amortisation.
Total liabilities increased 7% from US$316.9 million in FY2013 to
US$338.3 million in FY2014, largely due to:
Current Liabilities:
• Decreased by US$7.6 million to US$98.0 million, mainly due to
decrease in other financial liabilities of US$6.0 million as a result
of refinancing with long-term loans.
Non-Current Liabilities:
• Increased by US$28.9 million to US$240.3 million, mainly due
to the increase of long-term borrowings by US$38.8 million
resulting from new loan drawdowns offset by repayment of trade
advances of US$11.8 million.
Shareholders’ equity increased from US$165.5 million to US$172.7
million due to profit in the financial year of US$7.2 million.
Net asset value per ordinary share increased to 15.05 US cents in
FY2014 from 14.42 US cents in FY2013.
Cash Flow
US$’000
FY2014 FY2013FY2012
Cash at the beginning of year
14,208
7,145
23,551
Net cash from/(used in) operating activities
30,905
41,533
(11,987)
Net cash used in investing activities
(43,217)
(50,906)
(36,711)
Net cash from financing activities
11,739
16,436
32,292
(573)
7,063
(16,406)
13,735
14,208
7,145
Net (decrease)/increase in cash
Cash at end of year
The closing cash and cash equivalents of the Group was US$13.7
million for 2014. Excluding the net effect of exchange rate changes
in consolidating entities, the decrease was mainly due to cash
KENCANA AGRI LIMITED
outflows to investment offset by cash generated from operating
activities and cash inflows from financing activities.
ANNUAL REPORT 2014
08
Financial and
Operational Highlights
Review of Operational Performance
Increasing planted area
The Group continued phase 3 of its palm oil cultivation in Sulawesi
region after the first two phases in Sumatra and Kalimantan regions.
New planted area for the year was 582 ha on total planted area for
nucleus and plasma to 66,666 ha as at December 2014.
Nucleus planted area increased by 1,089 ha to 53,224 ha whereas
plasma planted area decreased by a net 507 ha to 13,442 ha due
to some plasma area no longer managed by the Group.
Planted Area
(Ha)
Development of Kencana’s planted area
(Nucleus + Plasma)
70,000
65,000
60,000
55,000
50,000
45,000
40,000
35,000
Plasma
Nucleus
30,000
25,000
20,000
15,000
10,000
5,000
Years of 1996 1997199819992000 20012002 200320042005 200620072008 20092010 20112012 2013 2014
planting
Phase 1
Phase 2
Phase 3
Young profile of oil palms drives the potential for strong FFB production growth
Kencana’s growth potential is not fully realised yet because 69% of
its nucleus oil palms are in the immature and young mature stage.
This shows that Kencana’s current profitability is derived mostly
from 31% production of its prime mature oil palms.
Age Profile
The young profile of oil palms, with a weighted average age of 6.4
years, will soon enter the prime mature phase. This will drive the
potential for strong FFB production growth over the next few years,
as the relatively young palms continue to mature and reach peak
production stage.
Immature
%
Young Mature
%
Prime Mature
%
Total
Nucleus
22,817
43
13,751
26
16,656
31
53,224
Plasma
3,475
26
4,495
33
5,472
41
13,442
26,292
40
18,246
27
22,128
33
66,666
Total
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
09
Higher yields from maturing oil palms will lead to increasing production volume
Due to better weather conditions, production of Nucleus FFB
increased to 527,118 MT in FY2014. Compounded Annual Growth
Rate (“CAGR”) is over 16% for the last 5 years. This growth was
mainly supported by Kencana’s prime mature oil palms, which
comprised about 31% of its total oil palms. With more mature
Nucleus (MT)
oil palms coming on stream in the next few years and barring
unforeseen circumstances, the Group expects its FFB production
to continue on an uptrend. With more FFB, CPO production is also
expected to ramp up.
6%
FFB Production Trend
(Nucleus)
550,000
rs
500,000
st
La
450,000
400,000
5
a
ye
1
GR
CA
350,000
300,000
250,000
200,000
150,000
100,000
50,000
Years of
harvesting
2000200120022003 200420052006 20072008 20092010 20112012 2013 2014
In general, oil palms start to yield FFB after approximately 36 months of age as they enter the young mature phase. After which, their average
FFB yields will increase exponentially from the initial 5-6 MT/ha to up to 22-28 MT/ha when they enter their prime years.
FFB Yield Parameters
& Assumptions
Immature
Oil Palm Age (years)
Average FFB yield (MT/ha)
Young Mature
Prime Mature
1-3
4
5
6
7 - 20
0
5-6
10 - 12
16 - 18
22 - 28
Significant unplanted land bank presents immense opportunities for future expansion
As at 31 December 2014, the Group had a total land bank of
193,570 ha (Nucleus and Plasma), with 66% of the area unplanted.
There is ample headroom for the Group to pursue its planting
9%
Young
Mature
66%
11%
Prime
Mature
Unplanted
Area
(66%)
14%
Immature
KENCANA AGRI LIMITED
programme and gradually achieve a better mix of immature and
mature oil palms to deliver sustainable production growth.
Kencana’s land bank (Nucleus + Plasma)
Planted Area
(ha)
%
Unplanted Area
(ha)
%
Total
%
Nucleus
Planted
Area
Plasma
(31%)
53,224
31
120,941
69
174,165
90
13,442
69
5,963
31
19,405
10
Total
66,666
34
126,904
66
193,570
100
Planted
Area
(34%)
ANNUAL REPORT 2014
10
Financial and
Operational Highlights
FY2014
FY2012
FY2013
193,570
174,165
19,405
(90%)
(10%)
192,716
172,717
19,999
(90%)
(10%)
198,935
183,888
15,047
(92%)
(8%)
Planted Area (ha)
Nucleus
Plasma
66,666
53,224
13,442
(80%)
(20%)
66,084
52,135
13,949
(79%)
(21%)
61,119
48,014
13,105
(79%)
(21%)
Age Profile (ha)
Nucleus
1 - 3 years (Immature)
4 - 6 years (Young Mature)
7 - 20 years (Prime Mature)
53,224
22,817
13,751
16,656
(43%)
(26%)
(31%)
52,135
26,077
9,512
16,546
(50%)
(18%)
(32%)
48,014
24,351
11,595
12,068
(51%)
(24%)
(25%)
Plasma
1 - 3 years (Immature)
4 - 6 years (Young Mature)
7 - 20 years (Prime Mature)
13,442
3,475
4,495
5,472
(26%)
(33%)
(41%)
13,949
4,497
4,164
5,288
(32%)
(30%)
(38%)
13,105
4,403
4,434
4,268
(34%)
(34%)
(32%)
FFB Production
Nucleus
Plasma
669,644
527,118
142,526
(79%)
(21%)
524,462
419,694
104,768
(80%)
(20%)
550,888
424,601
126,287
(77%)
(23%)
FFB Processed
691,784
564,187
625,789
Oil Production
CPO
CPKO
143,732
10,596
113,999
6,993
126,422
10,650
17.3
14.3
16.1
11.1
17.9
14.5
Oil extraction rates
CPO
CPKO
21.0%
43.3%
20.2%
43.0%
20.2%
41.7%
Sales Volume (MT)
CPO
CPKO
210,657
9,999
331,235
7,726
330,380
12,133
708
1,012
717
718
816
906
Land Bank (ha)
Nucleus
Plasma
Production Volume (MT)
Average FFB yield (MT/ha)
Nucleus
Plasma
Average Selling Price (US$/MT)
CPO
CPKO
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
11
Key Milestones
1995-2014
2012 - 2014
• New planted area (including plasma) of approximately 11,799
ha from FY2012 to FY2014
• Commenced joint venture operations for bio-energy (JV with
Enco) in FY2014
• Refinery commenced operations in FY2013
• Commenced construction of the Group’s first palm oil refinery
in Balikpapan (JV with Louis Dreyfus Commodities)
• Acquired 23,000 ha of landbank in Sulawesi region
• Acquired 2 additional vessels to support logistics operations
2009 - 2011
• Commenced joint venture port operations in East Kalimantan
with Louis Dreyfus Commodities, lifting total port and bulking
capacity to 66,000 MT
• Built fourth palm oil mill in East Kalimantan; commenced
operations in March 2012
• Started phase 3 of palm oil cultivation in Sulawesi, after the
first two phases in Sumatra and Kalimantan
• Raised S$52.5 million when the Wilmar Group became a
20% strategic shareholder in Kencana Agri in 2010
• Signed an Emissions Reduction Purchase Agreement
(“ERPA”) with the Danish Ministry of Climate and Energy to sell Certified Emission Reduction (“CER”) credits from our
biomass power plant at Bangka Island in 2010
• Acquired 80,000 hectares of land in Sulawesi, Indonesia in
2009
• Entered into a joint venture with Louis Dreyfus Group to build
and operate a deep water port in Balikpapan in 2009
2004 - 2007
• Signed a contract to supply green electricity from our
biomass power plant at Bangka Island to the state owned
electricity firm, PT Perusahaan Listrik Negara (“PLN”) in 2007
• Received a “Good” and a “Very Good” classification award
from the local governor for our subsidiaries PT. Sawindo
Kencana (“SWK”) and PT. Alamraya Kencana Mas (“AKM”)
respectively in 2006
• Acquired 46,000 hectares of land in East Kalimantan in 2005
• Built our first biomass power plant on Bangka Island in 2005
• Built and operated our first oil barge in 2004
• Carried out approximately 4,513 hectares of new planting in
2006
• Acquired 12,000 hectares of land in East Kalimantan in 2004
2008
• Listed on the Main Board of the Singapore Exchange in July
2008
1995 - 2003
• Started CPO and CPKO storage operations at our bulking
terminal in Belinyu in 2002
• Began CPKO production at our first kernel crushing plant on
Bangka Island with a capacity of 100 MT/day in 2002
• Began CPO production at our palm oil mill at Bangka Island
with a capacity of 30 MT/hour in 2001
• Commenced planting oil palms in South Kalimantan in 1998
• Acquired 15,000 hectares of land in South Kalimantan in
1997
• Began planting oil palms in Sumatra in 1996
• Began operations by acquiring 9,000 hectares of land on
Bangka Island in 1995
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
12
Sustainability And
Corporate Responsibility
Kencana Agri strives to develop its plantation business based on best
management practices that are sustainable and environmentally
friendly, and also seeks, wherever possible, to ensure compliance
with applicable government rules and regulations in areas where we
operate. This is realised through continuous balanced assessment
and development of its operations while simultaneously conserving
and improving the natural environment, and uplifting the
socioeconomic conditions of our employees, local communities,
and smallholders (plasma farmers). Being a good corporate
citizen, we would also seek guidance from the local authorities
and local communities whenever there is any inconsistency or
conflict between the provisions of this sustainability policy and the
prevailing applicable rules and regulations.
ENVIRONMENTAL MANAGEMENT
We are mindful that some aspects of our plantation and mill
operations impact the environment. Therefore, prior to expanding
any of our plantation and mill operations, we undertake a
KENCANA AGRI LIMITED
comprehensive and participatory independent social and
environmental impact assessment to identify any potential negative
impact and ensure that we comply with the prevailing governmental
rules and regulations. The findings from the assessments are taken
into account when planning and managing any new plantings.
Our Environmental Management sustainable commitments
are as follows:
• No deforestation of high carbon stock (“HCS”) forest areas and
no further land clearing of potential HCS areas until the results of
the proposed HCS study are adopted.
• No deforestation of high conservation value (“HCV”) areas.
• Apply a zero burning policy in respect of new planting and
replanting.
• Refrain from undertaking new development on peat land of any
depth.
• Endeavour to align ourselves with the industry practices
and standards generally adopted by the market in relation to
sustainable palm oil production.
ANNUAL REPORT 2014
13
COMMUNITY DEVELOPMENT AND SOCIAL IMPACT
As part of our commitment to improve the social and economic
welfare of the local communities in the areas where we operate,
we are fully committed in our Plasma Programme and have
implemented a multi-pronged Corporate Social Responsibility
(“CSR”) programme. We believe that through these community
development programmes, we are able to establish good rapport
with the local community, which is one of the key factors in ensuring
the success of our plantation management.
Through our Plasma Programme, over 8,000 local villagers
who were previously plantation workers have now become new
plantation owners. As plantation owners, local villagers benefit
economically and socially with increased income and better welfare.
They also receive training and education in oil palm cultivation. We
believe that the improvement in their income will have a multiplier
effect on the economy of the entire local community.
Our Community Development and Social Impact sustainable
commitment as follows:
• Continually develop our plasma program based on applicable
Indonesian laws and regulations.
• Facilitate the inclusion of qualified smallholders into the supply
chain.
• Implement corporate social responsibility programs.
• Respect the rights of indigenous and local communities to give
or withhold their Free, Prior and Informed Consent (FPIC) on
lands to which they hold legal, communal or customary rights in
line with applicable government regulations.
• Endeavour to resolve complaints and conflicts through an open,
transparent and consultative process.
• Respect land tenure rights.
HUMAN RIGHTS AND WORKPLACE
We respect human rights in all aspect and recognize the rights of all
workers of our company. We value the diverse culture of Indonesia,
and to further foster cultural values, we sponsor and participate in
traditional events and social functions. We also contribute to the
social and cultural welfare of the local communities by helping to
build and repair places of worship such as mosques, churches and
temples. In this way, we are able to maintain strong ties with the
local communities.
Our Human Rights and Workplace sustainable commitment
as follows:
• Respect and support the Universal Declaration of Human Rights.
• Respect and recognize the rights of all workers, including
contract, temporary and migrant workers.
• Comply with minimum wage policies.
• Prohibit child labour and forced labour at every stage of our
operations.
• Promote a healthy and safe working environment.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
14
Board of Directors
MR. HENRY MAKNAWI
Chairman and
Chief Executive Officer
Mr. Henry Maknawi is responsible
for the overall business strategies
and policies of the Group. He has
developed his expertise in business
operations and development based
on his knowledge and experience
gained in the plantation industry over
18 years. In November 1994, he was
conferred the Primaniyarta award
for outstanding export from 1989 to 1993 by the late President
Soeharto, the second President of the Republic of Indonesia
who held office from 1967 to 1998. The Primaniyarta award is
the highest award from the Indonesian Government issued by
the Menteri Perdagangan Republik Indonesia (Trade Minister
of the Republic of Indonesia) and National Agency for Export
Development given to exporters at the national and provincial
levels for their achievements in increasing non-oil and gas exports.
MS. RATNA MAKNAWI
Deputy Chief Executive Officer
Ms. Ratna Maknawi is responsible for
managing the Group’s overall business
operations and development. She
started as Finance Manager in
1993 and had played pivotal senior
management roles in the growth
and development of the Group’s
diverse businesses before advancing
to her present position as Deputy
Chief Executive Officer. Ms. Ratna
Maknawi graduated cum laude from the University of Wisconsin
– Whitewater, USA with a Bachelor of Business Administration
(Accounting major) in 1993.
KENCANA AGRI LIMITED
TENGKU ALWIN AZIZ
Vice-Chairman and
Independent Director
Tengku Alwin Aziz has been appointed
as Vice-Chairman since 2008. He
has also been an Independent
Commissioner of PT. London Sumatra
Indonesia Tbk, an Indonesianlisted company in the palm oil and
rubber plantations since 2000. He
was appointed by the Indonesian
authorities as an interim President
Director of PT. Bank Umum Nasional from 1998 to 1999 to oversee
the structuring of the bank. Prior to this, he served as an executive
director of Bank Dagang Negara from 1992 to 1997 and as
President Commissioner of various finance companies (including
subsidiaries of Bank Dagang Negara) from 1990 to 1998. He also
held the post of Managing Director of Staco International Financial
Ltd in Hong Kong from 1990 to 1992. He graduated in 1968 with
an Economics degree majoring in Accountancy from Universitas
Sumatera Utara, Medan.
MR. KENT SURYA
Finance Director
Mr. Kent Surya is responsible for
treasury and cash flow management,
finance and corporate finance, IT, tax
compliance, and financial reporting
at our Group. He is engaged as a
Director for most of the Group’s
companies since 2004. In 1981-1987,
he has held various positions relating
to the commercial and housing
developer industries. Between 1987
and 1998, as well as 2000 and 2003, he has held various positions
related to banking (PT Bank Danamon Indonesia, listed co) and
consumer finance (PT Olympindo Multi Finance). In addition, he
oversaw a business in the wood-based industry (Hutrindo group)
as Chief Operating Officer and Deputy Chief Executive Officer
from 1999 to 2000. Since 2004, he has been engaged by some
of our Group’s companies, namely SWK, AKM and AIK, first as a
senior Financial Advisor and later on as Vice President Director in
charge of the Group’s finances and operations. From August 2004
to May 2013, he was engaged as President Director of PT Graha
Meruya, a company related to the Group. Mr. Surya graduated
in 1983 with a degree in Civil Engineering from the University of
Tarumanagara in Jakarta, Indonesia, and obtained his Masters
in Business Administration (International-Strategic Management
major) in 1994 from the Institut Management Prasetya-Mulya,
Jakarta-Indonesia.
ANNUAL REPORT 2014
15
MR. SOH YEW HOCK
Lead Independent Director
M r. S o h Ye w H o c k h a s b e e n
appointed as Lead Independent
Director since 2008. He has extensive
experience in commerce and industry
and is presently the Lead Independent
Director and Chairman of the Audit
Committee of Japan Residential
Assets Manager Limited ( Manager
of Saizen Reit ) and Independent
Director and Chairman of the Audit
and Risk Committee of HTL Holdings Limited. Mr. Soh has
previously served as a director of several listed companies and
was CEO & Managing Director of Wearnes International (1994)
Limited. He is a FELLOW of the Institute of Singapore Chartered
Accountants, Certified Practising Accountants (Australia),
Association of Chartered Certified Accountants (UK), Chartered
Institute of Marketing (UK) and Singapore Institute of Directors. He
holds a Bachelor of Accountancy degree from the University of
Singapore (now National University of Singapore) and is a graduate
of the Chartered Institute of Marketing (UK) and the Advanced
Management Program of Harvard Business School. Mr. Soh was
a past President of CPA (Australia) Singapore Division.
MR. DARWIN INDIGO
Non-Executive and
Non-Independent Director
Mr. Darwin Indigo has been appointed
as Non-Executive Director since 2013.
He is currently the General Manager
- Indonesia for Wilmar Trading Pte.
Ltd. Mr. Darwin graduated from
Curtin University with a Bachelor of
Commerce (Finance) degree in 2002
and was on the Vice Chancellor’s list.
He also holds a Master of Business
Administration degree from the University of Technology, Sydney,
Australia.
MR. SIM IDRUS MUNANDAR
Independent Director
Mr. Sim Idrus Munandar has been
appointed as Independent Director
since 2010. He is also an Independent
Director of Samko Timber Limited
since December 2007. In addition
to this, he is also an independent
commissioner of PT BCA Finance, a
commissioner of various companies,
namely, PT. Sumber Sawit Sejahtera
and PT. Catur Manunggal Hidup
Sejahtera. Prior to 2005, he was the President Director of PT.
Bina Danatama Finance Tbk, a public listed company in Indonesia
engaged in the financing business. Mr. Sim obtained a Bachelor
Degree in Economics in 1981 from the University of Indonesia.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
16
Key Management Team
MR. ALBERT MAKNAWI
Chief Operating Officer
Mr. Albert Maknawi has been
appointed as COO since 2011 and is
responsible for overseeing the group’s
overall operational activities. He first
joined the Group in 2004, as Technical
Manager of PT Sawindo Kencana
and was in charge of managing daily
operations of mills and purchasing of
plant and equipment. Since 2005, he has been a director of PT
Listrindo Kencana and is responsible for the development and
construction of our renewable biomass power plant operations.
He has been a director of PT Belitung Energy (“BE”) since 2006,
where he is the founder and project leader responsible for the
construction of our Belitung power plant. Mr. Albert Maknawi
graduated in 2004 from the University of Melbourne, Australia with
a Bachelor of Engineering (Honours) and a Bachelor of Commerce.
MR. PHILLIP LIM
Financial Controller
Mr. Phillip Lim joined our group
in December 2012 as Financial
Controller and is responsible for the
Group’s financial and accounting
matters. Prior to joining the group, Mr
Lim has been the Financial Controller
of various MNCs for more than 10
years during which his tenure included
postings to Argentina, Kazakhstan and China covering areas of
financial and management reporting, ERP system implementation
and setting up of companies overseas. Mr. Lim graduated from the
National University of Singapore with a Bachelor of Accountancy
degree in 1990. He is currently a non-practising member of the
Institute of Singapore Chartered Accountants.
MR. AJIS CHANDRA
Head of Bulking and Logistics
Mr. Ajis Chandra is in charge of
managing the bulking and logistics
services of our operations. He is
also currently the President Director
of PT Indotrust and PT Pelayaran
Asia Marine. He was previously with
the Lippo Group for about 11 years,
holding various positions in Indonesia,
Malaysia and Vietnam. Mr. Chandra obtained a Bachelor of
Commerce in 1987 and two Masters Degrees in Accountancy and
Commerce in 1988 and 1989 respectively, from the University of
Wollongong, Australia.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
17
CORPORATE GOVERNANCE REPORT
The Board of Kencana Agri Limited (the “Company”) and its Management are committed to ensuring high standards of corporate
governance so as to ensure transparency, to protect shareholders’ interests and promote investors’ confidence.
This report describes the Group’s corporate governance structures and practices that were in place throughout the financial year ended
31 December 2014, with specific reference made to the principles of the Code of Corporate Governance 2012 (the “Code 2012”).
Where there are deviations from the Code 2012, appropriate explanations are provided.
The Board is pleased to confirm that for the financial year ended 31 December 2014, the Group has adhered to the principles and
guidelines as set out in the Code 2012 where appropriate.
BOARD MATTERS
The Board’s Conduct of Affairs
Principle 1: Every company should be headed by an effective Board to lead and control the Company. The Board is collectively
responsible for the long–term success of the company. The Board works with Management to achieve this objective and the
Management remains accountable to the Board.
The Board currently consists of seven members :
Henry Maknawi
Tengku Alwin Aziz
Ratna Maknawi
Kent Surya
Soh Yew Hock
Sim Idrus Munandar
Darwin Indigo
Chairman and Chief Executive Officer
Vice–Chairman and Independent Director
Deputy Chief Executive Officer
Finance Director
Lead Independent Director
Independent Director
Non–Executive and Non–Independent Director
The Board is entrusted with the responsibility of the overall management of the Company. The principal function of the Board is to
protect and enhance long–term value and returns for its shareholders. Besides carrying out its statutory responsibilities, the Board’s role
is to:
(a)
approve corporate objectives, plans, strategies, policies and financial objectives of the Group and monitoring the performance of
Management;
(b)
oversee the processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance;
(c)
approve nominations and appointments of Board directors, committee members and key management personnel;
(d)
approve proposals with regard to annual budgets, investments, capital expenditures, major acquisitions and divestments;
(e)
consider sustainability issues, e.g. environmental and social factors, as part of its strategic formulation; and
(f)
assume responsibility for corporate governance.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
18
CORPORATE GOVERNANCE REPORT
The Board meets regularly to review the Group’s performance, to deliberate on specific issues including major acquisitions and
disposals, to approve the annual budget and to approve the release of the quarterly, half–yearly and year–end financial results. There is
an objective decision–making process, which allows each Director to engage in constructive discussion and make decisions in the best
interests of the Company.
A schedule of all Board and Board Committee meetings as well as the Annual General Meeting for the next calendar year is planned
in advance. The Board meets at least four times a year. In addition to the scheduled meetings, ad–hoc board briefings, conference
calls and physical meetings are held as warranted by particular circumstance or as deemed appropriate by the Board members. The
Company’s Articles of Association permits meetings of the Directors to be conducted by telephone or other methods of simultaneous
communication by electronic means. The Board and Board Committees may also make decisions through circulating resolutions.
A total of five board meetings were held in the year 2014. The details of attendance of the formal meetings by individual Directors are as
follows:
Henry Maknawi
Kent Surya
Ratna Maknawi
Tengku Alwin Aziz
Soh Yew Hock
Sim Idrus Munandar
Darwin Indigo
Number of meetings held
Number of meetings attended
5
5
5
5
5
5
5
5
5
5
4
5
5
4
To assist the Board in the execution of its duties, the Board has established various Board Committees, namely the Nominating
Committee (“NC”), the Remuneration Committee (“RC”) and the Audit & Risk Management Committee (“ARC”). Each of these
committees is empowered to make decisions on matters within its terms of reference. The Board acknowledges that while these Board
Committees have the authority to examine specific issues and reports back to the Board with their decisions and recommendations, the
ultimate responsibility on all matters lies with the Board. Minutes of all Board Committee meetings held are made available to the Board
members.
The Group has adopted guidelines setting forth matters that require Board approval. The types of material transactions that require the
Board’s approval under such guidelines include:
l
Strategies and objectives of the Group;
lBudgets/Forecasts;
l
l
l
l
l
l
Announcement of quarter, half-year and full year results, and release of annual report;
Issuance of securities;
Declaration of interim dividends and proposed final dividends;
Convening of shareholders’ meetings;
Material acquisition/investment, divestment or capital expenditure; and
Corporate or financial restructuring.
Board members are apprised of the business and operations of the Company on a regular basis either through formal or informal
meetings and discussions. They are also encouraged to attend seminars and receive training to improve themselves in the discharge
of their duties as directors. The Company works closely with professionals to provide its directors with changes to relevant laws,
regulations and accounting standards.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
19
CORPORATE GOVERNANCE REPORT
A newly appointed director will undergo a customized orientation program led by Management. This is to provide the new Director with
background information about the Group’s structure and core values, its strategic direction and corporate governance practices as well
as industry–specific knowledge. The orientation program gives the new Director an understanding of the Group’s businesses to enable
him to assimilate into his new role. It also allows the new Director to get acquainted with the Management, thereby facilitating interaction
and independent access to the Management. The Company will also provide newly appointed director with a formal letter setting out
the duties and obligations of a director.
The Directors are provided with continuous briefings and updates in areas such as changes in company law, changes in SGX listing
rules, corporate governance practices and changes in financial reporting standards, so as to enable them to make well–informed
decisions. Where possible and when opportunity arises, the Directors will be invited to locations within the Group’s operating businesses
to enable them to obtain a better perspective of the business and enhance their understanding of the Group’s operations.
The Board as a whole is updated regularly on corporate governance, industry specific knowledge and the key changes in the relevant
regulatory requirements and financial reporting standards, so as to enable them to properly discharge their duties.
The Directors may also attend other appropriate courses, conferences and seminars, at the Company’s expense. They can also request
for further explanations, briefings or information on any aspect of the Company’s operations or business issues from Management.
Board Composition and Guidance
Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement
on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small group of
individuals should be allowed to dominate the Board’s decision making.
The Company endeavours to maintain a strong and independent element on the Board. As at the date of this report, more than one–
third of the Board members are independent directors.
While the Chairman and the CEO is the same person, the Board is of the opinion that based on the Group’s current size and operations,
it is not necessary to have independent directors make up at least half of the Board at present.
The NC determines on an annual basis whether or not a director is independent, taking into account the Code 2012 definition of an
“independent” director and guidance on relationships, the existence of which would deem a director not to be independent. A Director
who has no relationship with the Company, its related corporations, its 10% shareholders or its officers that could interfere, or be
reasonably perceived to interfere, with the exercise of his independent judgement in the best interests of the Company, is considered to
be independent.
Each independent director is required to complete a Director’s Independence Declaration annually to confirm his independence. The NC
critically reviews the Declaration completed by each Director to determine whether a Director is independent. Having carried out their
review for FY2014, the NC has determined that the three independent Directors, who are non–executive, are independent.
The Board is of the opinion that its current size of seven Board members is both effective and efficient. The Board’s structure, size and
composition is reviewed annually by the NC who is of the view that the current size of the Board is appropriate, taking into account the
nature and size of the Group’s business and operation, to facilitate effective decision making.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
20
CORPORATE GOVERNANCE REPORT
To facilitate the annual review of the directors’ mix of skills and experiences that the Board requires to function competently and
efficiently, all directors will provide information of their areas of specialization and expertise to the NC. The NC, having reviewed such
information, is satisfied that the Board members possess a balanced field of core competencies such as accounting and finance,
business and management experience and the requisite industry knowledge to lead the Company. Details of the Board members’
qualifications and experience are presented in this Annual Report under the heading “Board of Directors” on pages 14 to 15.
Chairman and Chief Executive Officer
Principle 3: There should be a clear division of responsibilities between the leadership of the Board and the executives
responsible for managing the company’s business. No one individual should represent a considerable concentration of power.
The Chairman and Chief Executive Officer (“CEO”) of the Company is Mr. Henry Maknawi. The Board, after careful consideration, is of
the opinion that the need to separate the roles of the Chairman and CEO is not necessary for the time being.
All major proposals and decisions are discussed and reviewed by the Board. The Chairman and CEO’s performance and appointment
to the Board is reviewed by the NC and his remuneration package is reviewed by the RC. The ARC and RC consist of all independent
directors and the NC consists of a majority of independent directors. Given this, the Board believes that there are sufficient strong and
independent elements and safeguards in place against an uneven concentration of power and authority in a single individual.
A Lead Independent Director, Mr. Soh Yew Hock, has been appointed, since the listing of the Company, to be an alternative avenue for
shareholders and other directors to raise their concerns where raising through the normal channels of the Chairman has failed to resolve,
or where such contact is inappropriate.
The Chairman’s duties and responsibilities include:–
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Leading the Board to ensure it is effective in its role;
Scheduling of meetings to enable the Board to perform its duties responsibly;
Ensuring the proper conduct of meetings and accurate documentation of the proceedings;
Ensuring the smooth and timely flow of information between the Board and Management;
Ensuring compliance with internal polices and guidelines of the Company and high standards of corporate governance;
Ensuring effective communication with shareholders through investors’ relationship channels and timely announcements of
Company’s development; and
Encouraging constructive relations between the Board and Management as well as between all directors.
In addition to the above duties, the Chairman will assume duties and responsibilities as may be required from time to time.
Board Membership
Principle 4: There should be a formal and transparent process for the appointment and re–appointment of directors to the
Board.
The NC is established and it comprises 3 members, the majority of whom, including the Chairman, are non–executive independent
directors.
Chairman
Member
Member : Tengku Alwin Aziz
: Soh Yew Hock
: Henry Maknawi
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
21
CORPORATE GOVERNANCE REPORT
The NC is established for the purposes of ensuring that there is a formal and transparent process for all Board appointments. It has
adopted written terms of reference defining its membership, administration and duties. The NC held one meeting in 2014. The details
of the attendance are as follows:
Number of meeting held
Number of meeting attended
1
1
1
1
1
1
Tengku Alwin Aziz
Soh Yew Hock
Henry Maknawi
The duties of the NC are as follows:
(a)
To make recommendations to the Board on all Board appointments, including development of a set of criteria for director
appointments, which includes qualifications of director; ability to exercise sound business judgments, relevance to the Company
and the industry and appropriate personal qualities;
(b)
To re–nominate directors having regard to the director’s contribution and performance (e.g. attendance, participation and critical
assessment of issues deliberated upon by the Board) including, if applicable, as an independent director;
(c)
To determine annually whether or not a director is independent;
(d)
To decide how the Board’s performance may be evaluated and propose objective performance criteria; and
(e)
To assess the effectiveness of the Board as a whole.
The NC regards succession planning as an important part of corporate governance and the Company has an internal process of
succession planning for Directors and the CEO to ensure the progressive and orderly renewal of Board membership.
The NC is responsible for identifying candidates and reviewing all nominations for the appointment of new directors. The search and
nomination process will be through search companies, contacts and recommendations. The NC will review and assess candidates
before making recommendation to the Board. In recommending new directors to the Board, the NC takes into consideration the
individual’s skills, calibre and experience required to support the Group’s business activities or strategies, the current composition and
size of the Board, and strives to ensure that the Board has an appropriate balance of independent directors as well as directors with the
right profile of expertise, skills, attributes and ability.
The role of NC also includes the reviewing of the re–nomination of directors who retire by rotation, taking into consideration the director’s
integrity, independence, contribution and performance. The Articles of Association of the Company require one–third of the directors to
retire and subject themselves to re–election by the shareholders in every Annual General Meeting (“AGM”). All directors of the Company
(including the CEO) shall retire from office at least once every three years. The Articles of Association of the Company also provides that
a newly appointed director must retire and submit himself for re–election at the next AGM following his appointment. Thereafter, he is
subject to be re–elected at least once every three years. A Director who is due for retirement, shall abstain from voting on any resolution
in respect of his re–nomination as a Director. The Board recognizes the contribution of its independent directors who over time, have
developed insight into the Group’s businesses and operations and are therefore able to provide invaluable contributions to the Group.
As such, the Board has decided not to set a fixed term of office for its independent directors.
All Directors are required to declare their board representations. The Board is of the view that the effectiveness of each director is
best assessed by a qualitative assessment of the director’s contribution and his ability to devote sufficient time and attention to the
Company’s affairs. Hence, the Board has decided not to set a numerical limit on the number of listed company board representations
as it does not wish to omit from consideration outstanding individuals who, despite the demands on their time, have the capacity to
participate and contribute as new members of the Board.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
22
CORPORATE GOVERNANCE REPORT
The details of the Board members’ directorship including the year of initial appointment and election are disclosed as follows:
Name of Directors
Appointment
Date of Initial
Appointment
Date of Last
Re–election
Directorship in Listed Companies
Henry Maknawi
Executive
30 May 2008
26 April 2012
Kencana Agri Limited
Kent Surya
Executive
30 May 2008
26 April 2012
Kencana Agri Limited
Ratna Maknawi
Executive
26 September 2007
24 April 2014
Kencana Agri Limited
Tengku Alwin Aziz
Non–Executive /
Independent
30 May 2008
24 April 2014
Kencana Agri Limited
Soh Yew Hock
Non–Executive /
Independent
30 May 2008
24 April 2014
Kencana Agri Limited
Japan Residential Assets Manager Ltd
(Manager of Saizen REIT)
HTL International Holdings Limited
Sim Idrus Munandar
Non–Executive /
Independent
30 September 2010
26 April 2013
Kencana Agri Limited
Samko Timber Limited
Darwin Indigo
Non–executive /
Non–Independent
26 April 2013
24 April 2014
Kencana Agri Limited
Board Performance
Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each
director to the effectiveness of the Board.
The NC has adopted a process for assessing the performance of the Board as a whole instead of individual assessment. The
performance appraisal includes qualitative and quantitative factors including Board structure, conduct of meetings, corporate strategy
and planning, risk management and internal control, and so on.
The NC undertakes the Board performance appraisal annually and the appraisal results are presented to and tabled during the meeting.
Although the Code 2012 proposes certain financial indicators as performance criteria, such as the Company’s share price performance,
the Board is of the opinion that the performance criteria should be geared toward evaluating the performance of the Board and the
directors in discharging its principal responsibilities, upholding high standards of corporate governance and strategic oversight of the
Company’s business rather than the specific performance of the Company’s share price and other financial indicators.
For the financial year ended 31 December 2014, the directors had been requested to complete a board evaluation questionnaire. The
questionnaire is designed to seek each Director’s views on various aspects of the Board’s performance. The responses are reviewed by
NC and discussed with Board members for determining areas of improvement.
The Board and the NC have endeavoured to ensure that Directors appointed to the Board possess the experience, knowledge and
expertise critical to the Group’s business.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
23
CORPORATE GOVERNANCE REPORT
Access to Information
Principle 6: In order to fulfill their responsibilities, Board members should be provided with complete, adequate and timely
information prior to Board meetings and on an on–going basis so as to enable them to make informed decisions to discharge
their duties and responsibilities.
The Board is furnished with Board papers prior to any Board meeting. These papers are issued in sufficient time to enable the Directors
to obtain additional information or explanations from the Management, if necessary. The Board papers include minutes of the previous
meeting, reports relating to investment proposals, budgets, financial results announcements and reports from committees, internal and
external auditors.
The Directors may communicate directly with the Management team and the Company Secretary on all matters whenever they deem
necessary. The Company Secretary attends Board meetings and is responsible for the recording of the proceedings.
The Company currently does not have a formal procedure for Directors to seek independent professional advice for the furtherance of
their duties. However, directors may, on a case–to–case basis, propose to the Board for such independent professional advice, the cost
of which may be borne by the Company.
The Company has a transparent policy wherein directors are welcomed to request further information or informal discussions and make
recommendations on any aspect of the Company’s operations or business issues.
REMUNERATION MATTERS
Procedures for Developing Remuneration Policies
Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing
the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.
The Remuneration Committee (“RC”) is established and it comprises 3 non–executive and independent directors.
Chairman Member Member :
:
:
Sim Idrus Munandar
Tengku Alwin Aziz
Soh Yew Hock
Although no member of the RC has direct expertise in the field of executive compensation, they possess direct experience managing
groups of staff working under them in their own business areas, and hence would invariably have to deal with compensation issues
from time to time in the course of their work. The RC will seek professional advice when necessary in discharging its duties and
responsibilities.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
24
CORPORATE GOVERNANCE REPORT
The RC is established for the purposes of ensuring that there is a formal and transparent procedure for fixing the remuneration packages
of individual directors. The overriding principle is that no director should be involved in deciding his own remuneration and the level
of remuneration should be appropriate to attract, retain and motivate the executive directors to run the Company successfully and
ensure that they are fairly rewarded for their individual contributions to overall performance. The RC will work within the principle that
the remuneration should be structured so as to link rewards to corporate and individual performance. It has adopted written terms
of reference that defines its membership, roles and functions and administration. The RC held one meeting in 2014. The details of the
attendance are as follows:
Sim Idrus Munandar
Tengku Alwin Aziz
Soh Yew Hock
Number of meeting held
Number of meeting held
1
1
1
1
1
1
The duties of the RC are as follows:
(a)
to review and make recommendations to the Board the employment terms and remuneration (including share options and other
benefits) of Executive Directors;
(b)
to review the remuneration packages of employees related to any director and/or substantial shareholder of the Group; and
(c)
to oversee the payment of fees to non–executive directors and to ensure, as far as is possible, that the quantum is
commensurate with the non–executive directors’ contribution to the Board and the Company.
Level and Mix of Remuneration
Principle 8: The level and structure of remuneration should be aligned with the long–term interest and risk policies of the
company, and should be appropriate to attract, retain and motivate (a) the directors to provide good stewardship of the
company, and (b) key management personnel to successfully manage the company. However, companies should avoid paying
more than is necessary for this purpose.
The annual reviews of the compensation are carried out by the RC to ensure that the remuneration of the Executive Directors and
key management personnel commensurate with their performance and that of the Company, giving due regard to the financial and
commercial health and business needs of the Company. The remuneration framework of the Executive Directors and key management
personnel comprises mainly a fixed component and a variable component, taking into account factors such as the individual
performance and the duties and responsibilities required of the position. The fixed component is paid in the form of a base salary. The
variable component is paid in the form of a bonus, which is linked to Company and individual performance.
Non–executive directors will be paid a fee for their board services and appointment to board committees, taking into account factors
such as their level of contribution to the Board, the effort and time spent, and responsibilities of these directors. While the remuneration
frameworks are not subject to shareholders’ approval, the directors’ fees for the non–executive directors will be subjected to the
approval of shareholders at AGMs.
The Company has no share–based compensation scheme or any long–term scheme involving the offer of shares or options in place.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
25
CORPORATE GOVERNANCE REPORT
Disclosure on Remuneration
Principle 9: Every company should provide clear disclosure of its remuneration policies, level and mix of remuneration,
and the procedure for setting remuneration, in the company’s Annual Report. It should provide disclosure in relation to its
remuneration policies to enable investors to understand the link between remuneration paid to directors and key management
personnel, and performance.
Remuneration of Directors of the Company
A breakdown, showing the level and mix of each individual director’s remuneration paid for the financial year ended 31 December 2014,
is as follows:–
Fee (1)
(%)
Salary & fixed
allowance
(%)
Bonus &
incentives
(%)
Other
Benefits
(%)
Total
(%)
S$500,001 to S$750,000
Henry Maknawi
–
80
19
1
100
S$250,001 to S$500,000
Ratna Maknawi
Kent Surya
–
–
80
80
19
19
1
1
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
Remuneration Band
S$250,000 and below
Alwin Aziz
Soh Yew Hock
Sim Idrus Munandar
Darwin Indigo
(1)
(2)
Directors’ fees are payable after approval by shareholders in the 2015 AGM
The proposed fee for Mr Darwin Indigo, upon approval by shareholders in the 2015 AGM, will be paid to Wilmar International
Limited
The Company had entered into separate Service Agreements with the three Executive Directors, namely, Mr Henry Maknawi, Ms
Ratna Maknawi and Mr Kent Surya, for an initial term of three years commencing from the Listing Date, which will continue thereafter.
The service agreements may be terminated by not less than six months’ notice in writing served by either party on the other. The
Company does not use contractual provisions to allow the Company to reclaim the incentive bonus from the executive directors in
exceptional circumstance of material restatement of the Company’s financial statements. The executive directors owe a fiduciary duty
to the Company. The Company should be able to avail itself to remedies against the executive directors in the event of such breach of
fiduciary duties.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
26
CORPORATE GOVERNANCE REPORT
Remuneration of Key Management personnel of the Group
The remuneration policy for key management personnel takes into consideration the responsibility and performance of individual
personnel. The following table below sets out the remuneration of the top five key management personnel (who are not Directors of the
Company) for the financial year ended 31 December 2014.
Remuneration Band
S$250,001 to S$500,000
S$250,000 and below
Number of Key Management personnel
4
1
In considering the disclosure of remuneration of the key management personnel of the Company, the Company has regarded the
industry conditions in which the company operates as well as the confidential nature of such remuneration. The Company believes that
full detailed disclosure of the remuneration of each key management personnel on a name basis as recommended by the Code would
be prejudicial to the Company’s interests and hamper its ability to retain and nurture the Company’s talent pool. The Company has
instead presented the aggregate remuneration of all key management personnel as stated above.
There are three employees who are immediate family members of a Director or CEO and whose remunerations exceeded S$50,000
for the financial year ended 31 December 2014: (i) Mr Eddy Maknawi, who is the brother of both Mr Henry Maknawi and Ms Ratna
Maknawi, (ii) Mr Albert Maknawi, who is the son of Mr Henry Makwawi, and (iii) Mr Ajis Chandra, who is the spouse of Ms Ratna
Maknawi.
The Board is of the opinion that the information as disclosed above would be sufficient for shareholders to have an adequate
appreciation of the Company’s compensation policies and practices and therefore does not intend to issue a separate remuneration
report.
ACCOUNTABILITY AND AUDIT
Accountability
Principle 10: The Board should present a balanced and understandable assessment of the company’s performance, position
and prospects.
One of the Board’s principal duties is to protect and enhance the long–term value and returns to the shareholders of the Company. The
accountability of the Board to the shareholders is demonstrated through the presentation of the periodic financial statements as well
as timely announcements and news releases of significant corporate developments and activities so that the shareholders can have a
detailed explanation and balanced assessment of the Group’s financial position and prospects.
The Board ensures that the Management maintains a sound system of internal control to safeguard the shareholders’ investment and
the Group’s assets.
The Management will provide all members of the Board with management reports and financial statements on regular basis. Board
papers are given prior to any Board meeting to facilitate effective discussion and decision making.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
27
CORPORATE GOVERNANCE REPORT
The Group recognizes the importance of providing the Board with accurate and relevant information on a timely basis. On a quarterly
basis, Directors are provided with management operation reviews and other information on the Group’s performance for effective
monitoring and decision making. The Management also highlights key business indicators and major issues that are relevant
to the Group’s performance from time to time in order for the Board to make a balanced and informed assessment of the Group’s
performance, position and prospects.
Risk Management and Internal Controls
Principle 11: The Board is responsible for the governance of risk. The Board should ensure that Management maintains a
sound system of risk management and internal controls to safeguard the shareholders’ investments and the company’s assets,
and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic
objectives.
The Board acknowledges that it is responsible for the governance of risks and the overall internal control framework, but recognizes
that no cost effective internal control system will preclude all errors and irregularities. A system is designed to manage rather than
eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material
misstatement or loss.
The Board is assisted by the Risk Working Group (“RWG”) which was formed in FY2012, as part of the Group’s efforts to strengthen its
risk management processes and framework. The RWG constitutes representatives from different business units in the Company. The
RWG has assessed the Group’s risk profile which summarizes the key risks faced, the appropriate risk rankings set for the respective
risk and the countermeasures in place to manage or mitigate those risks. On an ongoing basis, the RWG will review the key risks
identified and monitor changes affecting the risk criteria. The RWG will carry out internal risk management exercise and report the
findings and action plans to the Board on an annual basis.
The Board has received assurance from the CEO and the Finance Director that the financial records have been properly maintained and
the financial statements give a true and fair view of the Group’s businesses and operations and also that the Group’s risk management
and internal control system in place is adequate in addressing the key risks in the Group in its current business environment
Based on the internal control policies and procedures established and maintained by the Group, work performed by the external
and internal auditors, as well as reviews performed by the RWG, the Board, with the concurrence of the AC, is of the view that the
internal controls of the Group, addressing the financial, operational, compliance and information technology risks are adequate as at 31
December 2014.
Audit & Risk Management Committee
Principle 12: The Board should establish an Audit & Risk Management Committee (“ARC”) with written terms of reference
which clearly set out its authority and duties.
The ARC comprises 3 non–executive and independent directors.
Chairman
Member
Member
KENCANA AGRI LIMITED
Soh Yew Hock
Tengku Alwin Aziz
Sim Idrus Munandar
ANNUAL REPORT 2014
28
CORPORATE GOVERNANCE REPORT
The Chairman, Mr Soh Yew Hock, has extensive experience in commerce. The other members of the ARC possess experience in
finance and business management. At least two members have the appropriate accounting or related financial management experience
or expertise.
The Board is of the opinion that the members of the ARC have sufficient financial management expertise and experience in discharging
their duties.
The role of the ARC is to assist the Board with discharging its responsibility to safeguard the Company’s assets, maintain adequate
accounting records and develop and maintain an effective system of risk management and internal controls.
In accordance with the terms of reference adopted by the ARC, the ARC shall perform the following main functions:
(a)
Discuss with the external auditors, prior to the commencement of audit, the audit plan which states the nature and scope of the
audit;
(b)
Review with external auditors, their evaluation of the system of internal accounting controls, the Management Letter and
Management’s response thereon;
(c)
Review of the independence and objectivity of the external auditors and nomination of their re–appointment as auditors of the
Company;
(d)
Review of the adequacy of the Company’s internal controls, and the effectiveness of the Company’s internal audit function, the
internal audit annual plan and program including the scope and results of the internal audit;
(e)
Review of interested person transactions (as defined in Chapter 9 of the Listing Manual of SGX–ST);
(f)
Review of quarterly, half–yearly and annual financial results, including review of the significant financial reporting issues and
judgments so as to ensure the integrity of the financial statements of the Company and any formal announcements relating to
the Company’s financial performance;
(g)
to oversee and advise the Board on the current risk exposures and future risk strategy of the Company;
(h)
to review reports by the Risk Working Group and monitor Management’s responsiveness to the findings;
(i)
to review the effectiveness of the Company’s internal controls and risk management systems established by Management; and
(j)
Undertake any other functions that are requested by the Board, as may be required by statute or the Listing Manual.
In performing the above functions, the ARC confirms that it has full access to and co–operation from Management and is given full
discretion to invite any Director to attend its meetings. In addition, the ARC has also been given reasonable resources to enable it to
perform its functions properly. The ARC meets with the external auditors, without the presence of management, at least once a year.
The ARC has undertaken an annual review of of the audit and non–audit services provided by the external auditors to satisfy it that the
nature and extent of such services will not prejudice the independence and objectivity of the auditors before recommending their re–
nomination to the Board. A breakdown of the fees in total for audit and non–audit services is set out on page 71 of this annual report.
The ARC is satisfied with their independence and has recommended the re–appointment of the external auditors at the forthcoming
AGM of the Company.
The Company has implemented a Whistle–blowing Policy, which serves to encourage and provide a channel to employees to report
in good faith and in confidence, concerns about possible improprieties. The objective of such arrangement is to ensure independent
investigation of such matters and appropriate follow–up action.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
29
CORPORATE GOVERNANCE REPORT
During the year 2014, the ARC met five times and the details of attendance are as follows:
Soh Yew Hock
Tengku Alwin Aziz
Sim Idrus Munandar
Number of meetings held
Number of meetings attended
5
5
5
5
4
5
Internal Audit
Principle 13: The Company should establish an internal audit function that is independent of the activities it audits.
The ARC is aware that internal audit function is essential to assist in obtaining the assurance it requires regarding the effectiveness of the
system of internal control.
The Company currently has an in–house internal audit department for reviewing and implementing appropriate internal accounting
controls, risk management and good corporate governance. The internal auditors (“IA”) is guided by the International Standards for the
Professional Practice of Internal Auditing (IIA Standards) issued by the Institute of Internal Auditors. The IA reports directly to the ARC.
The ARC reviews and approves the internal audit scope and plan to ensure that there is sufficient coverage of the Group’s activities.
The internal control weaknesses identified during the internal audit reviews, the recommended corrective actions and management’s
responses are reported to the ARC on a quarterly basis.
The ARC annually reviews the adequacy of the internal audit function to ensure that the internal audits are performed effectively. The
ARC is satisfied that the IA is adequately staffed by qualified and experienced personnel.
SHAREHOLDER RIGHTS
Principle 14: Companies should treat all shareholders fairly and equitably, and should recognize, protect and facilitate the
exercise of shareholders’ rights, and continually review and update such governance arrangements
The Company’s corporate governance practices promote fair and equitable treatment of all shareholders. To facilitate shareholders’
ownership rights, the Company ensures that all material information is disclosed on a comprehensive and timely basis via SGXNET,
especially information pertaining to the Group’s business development and financial performance which could have a material impact
on the share price of the Company, so as to enable shareholders to make informed decisions in respect of their investments in the
Company.
Shareholders are informed of general meetings through notices published in the newspaper and the Company’s announcements and
press releases via SGXNET as well as through reports/circulars sent to all shareholders. They are given the opportunity to participate
effectively and vote at general meetings of the Company, where relevant rules and procedures governing the meetings are clearly
communicated.
The Articles of Association of the Company allow each shareholder to appoint up to two proxies to attend general meetings.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
30
CORPORATE GOVERNANCE REPORT
COMMUNICATION WITH SHAREHOLDERS
Principle 15: Companies should actively engage their shareholders and put in place an investor relations policy to promote
regular, effective and fair communication with shareholders.
The Company endeavours to communicate regularly, effectively and fairly with its shareholders.
Results are published via SGXNET and are usually followed by a news release. Price sensitive information is first publicly released, either
before the Company meets with any group of investors or analysts or simultaneously with such meetings. Results are announced or
issued within the mandatory period and are available on the Company’s website. The Company does not practise selective disclosure.
The Company communicates with its shareholders through its corporate website http://www.kencanaagri.com.
The Company does not have a fixed dividend policy at present. The frequency and amount of dividends declared each year will
take into consideration the Group’s profit growth, cash position, projected capital requirements for business growth and other factors
as the Board may deem appropriate. Given the volatility in palm oil prices and having considered the projected capital expenditure
requirements for planting and upkeep, the Board has decided not to recommend a dividend for FY2014.
CONDUCT OF SHAREHOLDER MEETINGS
Principle 16: Companies should encourage greater shareholder participation at general meetings of shareholders, and allow
shareholders the opportunity to communicate their views on various matters affecting the Company.
Annual reports and notices of AGM are sent to all shareholders. The notice is also published in the local newspapers and made available
on the SGXNET. At the AGM, the shareholders are given the opportunity to express their views and raise any queries regarding the
Company.
Each item of special business included in the notice of meeting will be accompanied by the relevant explanatory notes. This is to enable
the shareholders to understand the nature and effect of the proposed resolutions.
To facilitate voting by shareholders, the Company’s Articles of Association allows shareholders to appoint up to two proxies to
attend and vote at the same general meeting. The Board of Directors (including the Chairman of the respective Board committees),
Management, as well as the external auditors will attend the Company’s AGM to address any questions that shareholders may have.
The minutes of general meetings will be made available to shareholders upon written request.
The Company will be required to conduct its voting at general meetings by poll effective from 1 August 2015 where shareholders are
accorded voting rights proportionate to their shareholding and all votes will be counted.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
31
CORPORATE GOVERNANCE REPORT
DEALINGS IN SECURITIES
The Company has devised and adopted its own internal Code of Conduct on dealing in the securities of the Company (the “Code”).
This Code will provide guidance to the Group’s directors and employees on their dealings in its securities. The key guidelines are:
l
l
l
Directors and key officers are prohibited from trading in the Company’s securities during the period commencing two weeks
before the announcement of the Company’s financial statements for each of the first three quarters of its financial year, and
one month before the announcement of the Company’s full–year financial statements. The prohibition ends on the day of the
announcement of such results.
Directors and key officers should not deal in the Company’s securities on short–term consideration.
Directors and key officers are required to observe the insider trading laws under the Securities Industries Act at all times even
when engaging in dealings of securities within the non–prohibitory periods. To enable the Company to monitor such share
transactions, Directors and key officers are required to report to the Company whenever they deal in the Company’s securities.
The Company has complied with the Code for the financial year ended 31 December 2014.
INTERESTED PERSON TRANSACTIONS
The Company has adopted internal guidelines in respect of any transactions with interested persons and has set out the procedures
for review and approval of the Company’s interested person transactions. The main objective is to ensure that all interested person
transactions are conducted on arm’s length basis and on normal commercial terms and will not be prejudicial to the interests of our
shareholders.
The Company monitors all its interested person transactions closely and all interested person transactions are subject to review by the
ARC on a quarterly basis.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
32
CORPORATE GOVERNANCE REPORT
The aggregate value of interested person transactions for the financial year ended 31 December 2014 is as follows :Aggregate value of all interested
person transactions during the
financial year under review (excluding
transactions less than S$100,000
and transactions conducted under
shareholders’ mandate pursuant
to Rule 920)
Aggregate value of all interested
person transactions conducted
under shareholders’ mandate
pursuant to Rule 920 (excluding
transactions less than S$100,000)
USD’000
USD’000
Wilmar Group (Sales)
–
30,763
Wilmar Group (Purchases)
–
9,838
PT Berkat Wahana Sukses (Services received)
313
–
PT Berkat Wahana Sukses (Services received,
shareholders’ mandate obtained at EGM
held on 26 April 2012)
2,965
–
PT Alamindo Sejahtera Persada (Services
received)
366
–
PT Alamindo Sejahtera Persada (Services
received, shareholders’ mandate obtained
at EGM held on 26 April 2012))
2,442
–
Name of interested person
Save as disclosed, there is no other material contract of the Group involving the interests of the CEO, each director or controlling
shareholder of the Company as at the end of the financial year.
APPOINTMENT OF AUDITORS
The Group has complied with Rules 712, 715 and 716 of the Listing Manual issued by Singapore Exchange Securities Trading Limited in
relation to its auditors.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
DIRECTORS’ REPORT
34
STATEMENT BY DIRECTORS
37
INDEPENDENT AUDITORS’ REPORT
38
Consolidated Statement of
Profit or Loss and Other
Comprehensive Income
40
STATEMENTS OF FINANCIAL POSITION
42
STATEMENTS OF changes in equity
43
consolidated STATEMENT OF cash flows
44
notes to the financial STATEMENTS
45
34
DIRECTORS’ REPORT
The directors of the company are pleased to present their report together with the audited financial statements of the company and of
the group for the reporting year ended 31 December 2014.
1.
Directors at Date of Report
The directors of the company in office at the date of this report are:
Henry Maknawi Tengku Alwin Aziz
Ratna Maknawi
Kent Surya
Soh Yew Hock
Sim Idrus Munandar
Darwin Indigo
2.
Arrangements to Enable Directors to Acquire benefits by Means of the Acquisition of Shares and Debentures
3.
Directors’ Interests in Shares and Debentures
The directors of the company holding office at the end of the reporting year had no interests in the share capital of the company
and related corporations as recorded in the register of directors’ shareholdings kept by the company under section 164 of the
Companies Act, Chapter 50 (“the Act”) except as follows:
Neither at the end of the reporting year nor at any time during the reporting year did there subsist any arrangement whose
object is to enable the directors of the company to acquire benefits by means of the acquisition of shares or debentures in the
company or any other body corporate.
Name of directors and companies
in which interests are held
At beginning
of the reporting
year
At end of
the reporting
year
At beginning
of the reporting
year
At end of
the reporting
year
Number of shares of no par value
Direct interest
Deemed interest
Kencana Holdings Pte Ltd
(The ultimate parent company)
Henry Maknawi
Ratna Maknawi
Tengku Alwin Aziz
7,486,378
1,246,867
384,580
7,486,378
1,246,867
384,580
–
32,767
–
–
32,767
–
Kencana Agri Limited
(The company)
Henry Maknawi
Ratna Maknawi
Tengku Alwin Aziz
Kent Surya
Soh Yew Hock
7,099,880
–
1,675,880
837,440
200,000
7,099,880
–
1,675,880
837,440
200,000
610,220,896
5,666,120
–
–
–
610,220,896
5,666,120
–
–
–
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
35
DIRECTORS’ REPORT
3.
Directors’ Interest in Shares and Debentures (Cont’d)
By virtue of section 7 of the Act, Henry Maknawi is deemed to have an interest in the company as disclosed above and in all the
related corporations of the company.
The directors’ interests as at 21 January 2015 were the same as those at the end of the reporting year.
4.
Contractual Benefits of Directors
Since the beginning of the reporting year, no director of the company has received or become entitled to receive a benefit
which is required to be disclosed under section 201(8) of the Act, by reason of a contract made by the company or a related
corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial
interest except as disclosed in the financial statements.
5.
There were certain transactions (shown in the financial statements under related party transactions) with corporations in which
certain directors have an interest.
Share Options
During the reporting year, no option to take up unissued shares of the company or any subsidiary was granted.
During the reporting year, there were no shares of the company or any subsidiary issued by virtue of the exercise of an option to
take up unissued shares.
At the end of the reporting year, there were no unissued shares of the company or any subsidiary under option.
6.
Independent Auditor
The independent auditor, RSM Chio Lim LLP, have expressed their willingness to accept re-appointment.
7.
Report of Audit and Risk Management Committee
The members of the audit and risk management committee at the date of this report are as follows:
Soh Yew Hock
Tengku Alwin Aziz
Sim Idrus Munandar
KENCANA AGRI LIMITED
(Chairman of audit and risk management committee and Lead Independent Director)
(Vice Chairman and Independent Director)
(Independent Director)
ANNUAL REPORT 2014
36
DIRECTORS’ REPORT
7.
Report of Audit and Risk Management Committee (Cont’d)
The audit and risk management committee performs the functions specified by section 201B(5) of the Act. Among other
functions, it performed the following:
l
l
l
l
Other functions performed by the audit and risk management committee are described in the report on corporate governance
included in the annual report of the company. It also includes an explanation of how independent auditors objectivity and
independence are safeguarded where the independent auditor provide non-audit services.
The audit and risk management committee has recommended to the board of directors that the independent auditor, RSM Chio
Lim LLP, be nominated for re-appointment as independent auditor at the next annual general meeting of the company.
8.
Directors’ Opinion on the Adequacy of Internal Controls
Based on the internal controls established and maintained by the company, work performed by the internal and external auditor,
and reviews performed by management, other committees of the board and the board, the audit committee and the board are
of the opinion that company’s internal controls, addressing financial, operational and compliance risks, are adequate as at the
end of the reporting year 31 December 2014.
9.
Subsequent Developments
There are no significant developments subsequent to the release of the group’s and the company’s preliminary financial
statements, as announced on 27 February 2015, which would materially affect the group’s and the company’s operating and
financial performance as of the date of this report.
l
Reviewed with the independent external auditor their audit plan.
Reviewed with the independent external auditor their evaluation of the company’s internal accounting control, relevant to
their statutory audit and their report on the financial statements and the assistance given by management to them.
Reviewed with the internal auditor the scope and results of the internal audit procedures (including those relating to
financial, operational and compliance controls and risk management) and the assistance given by the management to
the internal auditors.
Reviewed the financial statements of the group and the company prior to their submission to the directors of the
company for adoption.
Reviewed the interested person transactions (as defined in Chapter 9 of the Singapore Exchange Securities Trading
Limited’s Listing Manual).
On Behalf of the Directors
Henry Maknawi
Kent Surya
DirectorDirector
27 March 2015
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
37
STATEMENT BY DIRECTORS
In the opinion of the directors,
(a) the accompanying consolidated statement of profit or loss and other comprehensive income, statements of financial position,
statements of changes in equity, consolidated statement of cash flows, and notes thereto are drawn up so as to give a true and
fair view of the state of affairs of the company and of the group as at 31 December 2014 and of the results and cash flows of
the group and changes in equity of the company and of the group for the reporting year then ended; and
(b) at the date of this statement there are reasonable grounds to believe that the company will be able to pay its debts as and when
they fall due.
The board of directors approved and authorised these financial statements for issue.
On Behalf of the Directors
Henry Maknawi
Kent Surya
DirectorDirector
27 March 2015
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
38
INDEPENDENT AUDITORS’ REPORT
To the Members of Kencana Agri Limited (Registration No: 200717793E)
Report on the Financial Statements
We have audited the accompanying financial statements of Kencana Agri Limited (the “company”) and its subsidiaries (the “group”),
which comprise the consolidated statement of financial position of the group and the statement of financial position of the company
as at 31 December 2014, and the consolidated statement of profit or loss and other comprehensive income, statement of changes in
equity and statement of cash flows of the group, and statement of changes in equity of the company for the reporting year then ended,
and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with the provisions
of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards, and for devising and maintaining
a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from
unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the
preparation of true and fair statements of profit or loss and other comprehensive income and statements of financial position and to
maintain accountability of assets.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements of the group and the statement of financial position and statement of changes in
equity of the company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards
so as to give a true and fair view of the state of affairs of the group and of the company as at 31 December 2014 and of the results,
changes in equity and cash flows of the group and the changes in equity of the company for the reporting year ended on that date.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
39
INDEPENDENT AUDITORS’ REPORT
To the Members of Kencana Agri Limited (Registration No: 200717793E)
Report on Other Legal and Regulatory Requirements
In our opinion, the accounting and other records required by the Act to be kept by the company and by those subsidiaries incorporated
in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.
RSM Chio Lim LLP
Public Accountants and
Chartered Accountants
Singapore
27 March 2015
Partner in charge of audit: Kaka Singh
Effective from year ended 31 December 2014
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
40
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Year Ended 31 December 2014
Group
Notes
2014
US$’000
2013
US$’000
Restated
Revenue
4
176,504
284,052
Cost of Sales
5
(136,413)
(253,931)
40,091
30,121
2,582
533
Gross Profit
Other Items of Income
Interest Income
Other Gains
6
618
54
Gain on Fair Value Changes in Biological Assets and Other Receivables
7
6,976
10,989
Other Items of Expense
Distribution Costs
8
Administrative Expenses
(2,953)
(4,800)
(10,977)
(11,147)
Finance Costs
9
(12,503)
(8,773)
Other Losses
6
(8,333)
(23,445)
Share of Loss from Equity-Accounted Joint Ventures
20
Profit/(Loss) before Tax from Continuing Operations
Income tax (Expense)/Income
11
Profit/(Loss) from Continuing Operations, Net of Tax
Loss from Discontinued Operations, Net of Tax
13
Profit/(Loss) Net of Tax
(2,338)
(2,377)
13,163
(8,845)
(5,585)
458
7,578
(8,387)
(355)
(2,356)
7,223
(10,743)
(646)
(48,797)
(119)
(920)
Other Comprehensive Income
Items that may be reclassified subsequently to profit or loss:
Exchange Differences on Translating Idr Functional Currency to
US$ Presentation Currency, Net of Tax
Items that will not be reclassified to profit or loss:
Remeasurements of Defined Benefit Pension Plans, Net of Tax
29
(765)
(49,717)
Total Comprehensive Income/(Loss)
6,458
(60,460)
Profit/(Loss) Attributable to Owners of the Parent, Net of Tax
7,223
(10,743)
Other Comprehensive Loss for the Year, Net of Tax
Profit Attributable To Non-controlling Interests, Net of Tax
–
–
Profit/(Loss), Net of Tax
7,223
(10,743)
Total Comprehensive Income/(Loss) Attributable to Owners of the Parent
6,458
(60,431)
Total Comprehensive Loss Attributable to Non-Controlling Interests
Total Comprehensive Income/(Loss)
KENCANA AGRI LIMITED
–
(29)
6,458
(60,460)
ANNUAL REPORT 2014
41
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Year Ended 31 December 2014
Group
Notes
2014
2013
Restated
Earnings/(Loss) per Share
Earnings/(Loss) per Share Currency Unit
Basic
Continuing Operations
Discontinued Operations
Total
15
Diluted
Continuing Operations
Discontinued Operations
Total
15
Cents
Cents
0.6
–
(0.7)
(0.2)
0.6
(0.9)
0.6
–
(0.7)
(0.2)
0.6
(0.9)
The accompanying notes form an integral part of these financial statements
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
42
STATEMENTS OF FINANCIAL POSITION
As at 31 December 2014
Group
Company
2014
2013
US$’000
US$’000
Notes
2014
US$’000
2013
US$’000
16
17
18
19
20
21
23
24
96,767
2,460
297,169
–
5,523
38,386
16,276
844
90,466
2,486
270,302
–
5,406
34,893
4,811
942
–
–
–
42,615
5,500
–
–
–
–
–
–
44,584
5,389
–
–
–
457,425
409,306
48,115
49,973
11,729
16,335
11,382
14,124
12,087
32,888
13,929
14,208
–
24,908
–
952
–
27,160
–
1,501
53,570
73,112
25,860
28,661
510,995
482,418
73,975
78,634
93,860
139,733
2,485
(63,348)
93,860
132,629
2,628
(63,678)
93,860
(4,487)
–
(17,563)
93,860
994
–
(16,389)
Equity, Attributable to Owners of the Parent
Non-Controlling Interests
172,730
5
165,439
105
71,810
–
78,465
–
Total Equity
172,735
165,544
71,810
78,465
27,113
598
9,484
198,868
4,216
23,935
1,309
22,585
160,081
3,429
–
–
–
–
–
–
–
–
–
–
240,279
211,339
–
–
2,334
53,977
1,235
40,435
2,200
55,138
1,795
46,402
3
2,162
–
–
61
108
–
–
ASSETS
Non-Current Assets
Property, Plant and Equipment
Investment Property
Biological Assets, Non-Current
Investments in Subsidiaries
Investments in Joint Ventures
Land Use Rights
Other Receivables, Non-Current
Other Assets, Non-Current
Total Non-Current Assets
Current Assets
Inventories
Trade and Other Receivables, Current
Other Assets, Current
Cash and Cash Equivalents
22
23
24
25
Total Current Assets
Total Assets
EQUITY and LIABILITIES
Equity
Share Capital
Retained Earnings/(Accumulated Losses)
Other Reserve
Translation Reserve
Non-Current Liabilities
Deferred Tax Liabilities
Finance Leases, Non-Current
Other Payables, Non-Current
Other Financial Liabilities, Non-Current
Other Liabilities, Non-Current
26
11
27
28
27
29
Total Non-Current Liabilities
Current Liabilities
Income Tax Payable
Trade and Other Payables, Current
Finance Leases, Current
Other Financial Liabilities, Current
28
27
27
97,981
105,535
2,165
169
Total Liabilities
338,260
316,874
2,165
169
Total Equity and Liabilities
510,995
482,418
73,975
78,634
Total Current Liabilities
The accompanying notes form an integral part of these financial statements
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
43
STATEMENTS OF changes in equity
Year Ended 31 December 2014
Group
Total
Equity
US$’000
Attributable
to Parent
Sub-total
US$’000
Share
Capital
US$’000
Retained
Earnings
US$’000
Other
Reserve
US$’000
165,544
165,439
93,860
132,629
2,628
6,458
6,458
–
7,223
–
733
833
–
–
–
–
–
(119)
172,735
172,730
93,860
227,213
227,079
(60,460)
(1,209)
Reserve
on PostEmployment
Benefit
US$’000
Translation
Reserve
US$’000
NonControlling
Interests
US$’000
–
(63,678)
105
(119)
(646)
–
(143)
–
976
(100)
–
119
–
–
139,733
2,485
–
(63,348)
5
93,860
145,501
2,628
–
(14,910)
134
(60,431)
–
(10,743)
–
(920)
(48,768)
(29)
(1,209)
–
(1,209)
–
–
–
–
–
–
–
(920)
–
920
–
–
165,544
165,439
93,860
132,629
2,628
–
(63,678)
105
Current Year:
Opening Balance at 1 January 2014
Movements in Equity:
Total Comprehensive Income/(Loss) for
the Year
Disposal of Subsidiary with a Change in
Control (Note 13)
Transferred to Retained Earnings
Closing Balance at 31 December 2014
Previous Year:
Opening Balance at 1 January 2013
Movements In Equity:
Total Comprehensive Loss for the Year
Dividends Paid (Note 14)
Transferred to Retained Earnings
Closing Balance at 31 December 2013
Company
Total
Equity
US$’000
Share
Capital
US$’000
(Accumulated Losses) /
Retained Earnings
US$’000
78,465
93,860
994
Translation
Reserve
US$’000
Current Year:
Opening Balance at 1 January 2014
(16,389)
Movements in Equity:
Total Comprehensive Loss for the Year
(6,655)
–
(5,481)
(1,174)
Closing Balance at 31 December 2014
71,810
93,860
(4,487)
(17,563)
100,521
93,860
1,902
4,759
Previous Year:
Opening Balance at 1 January 2013
Movements in Equity:
Total Comprehensive (Loss)/Income for the Year
(20,847)
–
301
(21,148)
Dividends Paid (Note 14)
(1,209)
–
(1,209)
–
Closing Balance at 31 December 2013
78,465
93,860
994
(16,389)
The accompanying notes form an integral part of these financial statements
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
44
consolidated STATEMENT OF cash flows
Year Ended 31 December 2014
Group
2014
US$’000
2013
US$’000
Cash Flows from Operating Activities
Profit/(Loss) Before Tax
Adjustments for:
Interest Income
Interest Expense
Amortisation of Land Use Rights
Depreciation Expense
Gain on Fair Value Changes in Biological Assets
Increase in Provision for Employment Pension Benefits
Loss on Disposal of Property, Plant and Equipment
Loss on Fair Value Changes in Other Receivables
Share of Loss of Equity-Accounted Joint Ventures
Net Effect of Exchange Rate Changes in Consolidating Entities
Operating Cash Flows Before Changes in Working Capital
Inventories
Trade and Other Receivables
Other Financial Assets
Other Financial Liabliities
Other Assets
Trade and Other Payables
Net Cash Flows from Operations Before Tax
Income Taxes Paid
Net Cash Flows from Operating Activities
13,163
(11,988)
(2,582)
12,503
1,074
5,863
(7,263)
839
12
287
2,338
3,319
29,553
(998)
15,109
–
1,021
1,995
(13,457)
33,223
(2,318)
30,905
(543)
10,448
1,185
5,972
(11,662)
831
28
673
2,377
13,170
10,491
5,317
15,083
910
696
(3,589)
15,956
44,864
(3,331)
41,533
Cash Flows from Investing Activities
Disposal of Plant and Equipment
Purchase of Property, Plant and Equipment (Note 25B)
Additions to Biological Assets
Purchase of Land Use Rights
Interest Received
Investments in Joint Ventures
Net Cash Flows Used in Investing Activities
358
(24,346)
(16,256)
(5,555)
2,582
–
(43,217)
7
(19,165)
(24,434)
(6,857)
543
(1,000)
(50,906)
–
140,805
(105,617)
(1,991)
(21,458)
11,739
(1,209)
152,575
(114,974)
(2,437)
(17,519)
16,436
(573)
100
14,208
13,735
7,063
–
7,145
14,208
Cash Flows from Financing Activities
Dividends Paid to Equity Owners
Proceeds from Borrowings
Repayment of Borrowings
Finance Lease Repayments
Interest Paid
Net Cash Flows from Financing Activities
Net (Decrease)/Increase in Cash and Cash Equivalents
Net Effect of Exchange Rate Changes on Cash and Cash Equivalents
Cash and Cash Equivalents, Consolidated Statement of Cash Flows, Beginning Balance
Cash and Cash Equivalents, Consolidated Statement of Cash Flows, Ending Balance (Note 25A)
The accompanying notes form an integral part of these financial statements
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
45
notes to the financial STATEMENTS
31 December 2014
1.General
The company is incorporated in Singapore with limited liability. The financial statements are presented in United States dollars
and they cover the company (referred to as “parent”) and the subsidiaries.
The board of directors approved and authorised these financial statements for issue on the date of the statement by directors.
The company is an investment holding company. It is listed on the Singapore Exchange Securities Trading Limited.
The principal activities of the subsidiaries are described in the Notes to the financial statements below.
The registered office is: 36 Armenian Street, #03-02, Singapore 179934. The company is situated in Singapore.
The current liabilities are more than the current assets. The financial position of the entity, its cash flows, liquidity position and
borrowing facilities are described in the notes to the financial statements. In addition the notes to the financial statements
include the objectives, policies and processes for managing capital; financial risk management objectives; details of its financial
instruments; and its exposures to credit risk and liquidity risk. The entity has considerable financial resources together with some
good arrangements with a number of customers and suppliers. As a consequence, the management believes that the entity is
well placed to manage its business risks. After making enquiries, the management has a reasonable expectation that the entity
has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
2.
Summary of Significant Accounting Policies
Accounting Convention
The financial statements have been prepared in accordance with the Singapore Financial Reporting Standards (“FRS”) and the
related Interpretations to FRS (“INT FRS”) as issued by the Singapore Accounting Standards Council and the Companies Act,
Chapter 50. The financial statements are prepared on a going concern basis under the historical cost convention except where
a FRS requires an alternative treatment (such as fair values) as disclosed where appropriate in these financial statements. The
accounting policies in FRSs need not be applied when the effect of applying them is immaterial. The disclosures required by
FRSs need not be made if the information is immaterial. Other comprehensive income comprises items of income and expense
(including reclassification adjustments) that are not recognised in the income statement, as required or permitted by FRS.
Reclassification adjustments are amounts reclassified to profit or loss in the income statement in the current period that were
recognised in other comprehensive income in the current or previous periods.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
46
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Basis of Presentation
The consolidated financial statements include the financial statements made up to the end of the reporting year of the
company and all of its subsidiaries. The consolidated financial statements are the financial statements of the group in which
the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of
a single economic entity and are prepared using uniform accounting policies for like transactions and other events in similar
circumstances. All significant intragroup balances and transactions, including income, expenses and cash flows are eliminated
on consolidation. Subsidiaries are consolidated from the date the reporting entity obtains control of the investee and cease
when the reporting entity loses control of the investee. Control exists when the group has the power to govern the financial and
operating policies so as to gain benefits from its activities.
Changes in the group’s ownership interest in a subsidiary that do not result in the loss of control are accounted for within equity
as transactions with owners in their capacity as owners. The carrying amounts of the group’s and non-controlling interests
are adjusted to reflect the changes in their relative interests in the subsidiary. When the group loses control of a subsidiary it
derecognises the assets and liabilities and related equity components of the former subsidiary. Any gain or loss is recognised in
profit or loss. Any investment retained in the former subsidiary is measured at its fair value at the date when control is lost and is
subsequently accounted as available-for-sale financial assets in accordance with FRS 39.
The company’s separate financial statements have been prepared on the same basis, and as permitted by the Companies Act,
Chapter 50, the company’s separate statement of profit or loss and other comprehensive income is not presented.
Basis of Preparation of the Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires the management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
year. Actual results could differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis. Apart
from those involving estimations, management has made judgements in the process of applying the entity’s accounting policies.
The areas requiring management’s most difficult, subjective or complex judgements, or areas where assumptions and estimates
are significant to the financial statements, are disclosed at the end of this footnote, where applicable.
Revenue Recognition
The revenue amount is the fair value of the consideration received or receivable from the gross inflow of economic benefits
during the reporting year arising from the course of the activities of the entity and it is shown net of any related sales taxes
and rebates. Revenue from the sale of goods is recognised when significant risks and rewards of ownership are transferred
to the buyer, there is neither continuing managerial involvement to the degree usually associated with ownership nor effective
control over the goods sold, and the amount of revenue and the costs incurred or to be incurred in respect of the transaction
can be measured reliably. Revenue from rendering of services that are not significant transactions is recognised as the services
are provided or when the significant acts have been completed. Rental revenue is recognised on a time-proportion basis that
takes into account the effective yield on the asset on a straight-line basis over the lease term. Interest is recognised using the
effective interest method. Dividend from equity instruments is recognised as income when the entity’s right to receive payment is
established.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
47
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Employee Benefits
Certain subsidiaries of the group are required to provide for employee service entitlements in order to meet the minimum
benefits required to be paid to qualified employees as required under existing manpower regulations in Indonesia. Short-term
employee benefits are recognised at an undiscounted amount where employees have rendered their services to the group
during the accounting periods. Post employment benefits are recognised at discounted amounts when the employees have
rendered their services to the group during the accounting periods. Liabilities and reserves are measured using actuarial
techniques which include constructive obligations that arise from the group’s common practices. In calculating the liabilities,
the benefits are discounted by using the projected unit credit method and changes in fair value recognised through other
comprehensive income. Termination benefits are recognised when, and only when, the group is committed to either; (a)
terminate the employment of an employee or group of employees before the normal retirement date; or (b) provide termination
benefits as a result of an offer made in order to encourage voluntary redundancy.
This plan is in addition to the contributions to government managed retirement benefit plans such as the Central Provident Fund
(“CPF”) in Singapore which specifies the employer’s obligations which are dealt with as defined contribution retirement benefit
plans. Contributions to defined contribution retirement benefit plans are recorded as an expense as they fall due. The entity’s
legal or constructive obligation is limited to the amount that it agrees to contribute to the CPF.
For employee leave entitlement the expected cost of short-term employee benefits in the form of compensated absences
is recognised in the case of accumulating compensated absences, when the employees render service that increases their
entitlement to future compensated absences; and in the case of non-accumulating compensated absences, when the absences
occur. A liability for bonuses is recognised where the entity is contractually obliged or where there is constructive obligation
based on past practice.
Income Tax
The income taxes are accounted using the asset and liability method that requires the recognition of taxes payable or refundable
for the current year and deferred tax liabilities and assets for the future tax consequence of events that have been recognised
in the financial statements or tax returns. The measurements of current and deferred tax liabilities and assets are based on
provisions of the enacted or substantially enacted tax laws; the effects of future changes in tax laws or rates are not anticipated.
Tax expense (tax income) is the aggregate amount included in the determination of profit or loss for the reporting year in respect
of current tax and deferred tax. Current and deferred income taxes are recognised as income or as an expense in profit or
loss unless the tax relates to items that are recognised in the same or a different period outside profit or loss. For such items
recognised outside profit or loss the current tax and deferred tax are recognised (a) in other comprehensive income if the tax is
related to an item recognised in other comprehensive income and (b) directly in equity if the tax is related to an item recognised
directly in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same income tax
authority. The carrying amount of deferred tax assets is reviewed at each end of the reporting year and is reduced, if necessary,
by the amount of any tax benefits that, based on available evidence, are not expected to be realised. A deferred tax amount is
recognised for all temporary differences, unless the deferred tax amount arises from the initial recognition of an asset or liability
in a transaction which (i) is not a business combination; and (ii) at the time of the transaction, affects neither accounting profit
nor taxable profit (tax loss). A deferred tax liability or asset is recognised for all taxable temporary differences associated with
investments in subsidiaries and joint arrangements except where the reporting entity is able to control the timing of the reversal
of the taxable temporary difference and it is probable that the taxable temporary difference will not reverse in the foreseeable
future or for deductible temporary differences, they will not reverse in the foreseeable future and they cannot be utilised against
taxable profits.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
48
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Foreign Currency Transactions
The functional currency of the company and all of its subsidiaries except for Sawindo Agri Pte Ltd is the Indonesian Rupiah
(“IDR”). The functional currency of Sawindo Agri Pte Ltd is the United States dollar (“US$”). The functional currency reflects the
primary economic environment in which these entities operate. Transactions in foreign currencies are recorded in the functional
currency at the rates ruling at the dates of the transactions. At each end of the reporting year, recorded monetary balances
and balances measured at fair value that are denominated in non-functional currencies are reported at the rates ruling at the
end of the reporting year and fair value dates respectively. All realised and unrealised exchange adjustment gains and losses are
dealt with in profit or loss except when recognised in other comprehensive income and if applicable deferred in equity such as
qualifying cash flow hedges. The presentation currency is the United States dollar as the financial statements are meant primarily
for international users. For the United States dollar financial statements assets and liabilities are translated at year end rates of
exchange and the income and expense items are translated at average rates of exchange for the reporting year. The resulting
translation adjustments (if any) are recognised in other comprehensive income and accumulated in a separate component of
equity.
The translations of IDR amounts into US$ amounts are included solely for the convenience of readers. The reporting year
end rates used are US$1 to IDR12,440 (2013: US$1 to IDR12,189) which approximate the rate of exchange at the end of the
reporting year. The average rates of exchange for the reporting year were US$1 to IDR11,869 (2013: US$1 to IDR10,459). Such
translation should not be construed as a representation that the US$ amounts could be converted into IDR at the above rate or
other rate.
Translation of Financial Statements of Other Entities
Each entity in the group determines the appropriate functional currency as it reflects the primary economic environment in
which the relevant reporting entity operates. In translating the financial statements of such an entity for incorporation in the
consolidated financial statements in the presentation currency the assets and liabilities denominated in other currencies are
translated at end of the reporting year rates of exchange and the income and expense items for each statement presenting
profit or loss and other comprehensive income are translated at average rates of exchange for the reporting year. The resulting
translation adjustments (if any) are recognised in other comprehensive income and accumulated in a separate component of
equity until the disposal of that relevant reporting entity.
Borrowing Costs
Borrowing costs are interest and other costs incurred in connection with the borrowing of funds. The interest expense is
calculated using the effective interest rate method. Borrowing costs are recognised as an expense in the period in which they
are incurred except that borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset that necessarily take a substantial period of time to get ready for their intended use or sale are capitalised as part of the
cost of that asset until substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are
complete.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
49
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Property, Plant and Equipment
Depreciation is provided on a straight-line basis to allocate the gross carrying amounts of the assets less their residual values
over their estimated useful lives of each part of an item of these assets. The annual rates of depreciation are as follows:
Freehold land
Leasehold buildings
Plant, fixtures and equipment
Vessels
–
Depreciation is not provided
–
Over the terms of the lease that are from 1% to 6.25%
–
12.5% to 25%
–6.25%
–
Depreciation is not provided until the asset is available for use.
Assets under construction
An asset is depreciated when it is available for use until it is derecognised even if during that period the item is idle. Fully
depreciated assets still in use are retained in the financial statements.
Property, plant and equipment are carried at cost on initial recognition and after initial recognition at cost less any accumulated
depreciation and any accumulated impairment losses. The gain or loss arising from the derecognition of an item of property,
plant and equipment is measured as the difference between the net disposal proceeds, if any, and the carrying amount of the
item and is recognised in profit or loss. The residual value and the useful life of an asset is reviewed at least at each end of the
reporting year and, if expectations differ significantly from previous estimates, the changes are accounted for as a change in an
accounting estimate, and the depreciation charge for the current and future periods are adjusted.
Cost also includes acquisition cost, borrowing cost capitalised any cost directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the manner intended by management. Subsequent costs are
recognised as an asset only when it is probable that future economic benefits associated with the item will flow to the entity
and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss when they are
incurred.
Investment Property
Investment property is property (land or a building or part of a building or both) owned or held under a finance lease to
earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for
administrative purposes or sale in the ordinary course of business. It includes an investment property in the course of
construction. After initial recognition at cost including transaction costs the cost model is used to measure the investment
property using the treatment for property, plant and equipment, that is, at cost less any accumulated depreciation and any
accumulated impairment losses. An investment property that meets the criteria to be classified as held for sale is carried at the
lower of carrying amount and fair value less costs to sell. For disclosure purposes, the fair values are determined periodically on
a systematic basis at least once yearly by management. The annual rates of depreciation are as follows:
Leasehold buildings – Over the terms of the lease that is 1%
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
50
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Land Use Rights
Land rights that have a limited useful life are depreciated in a manner that reflects the benefits to be derived from these rights.
Costs associated with the legal transfer or renewal for titles of land rights, such as legal fees, land survey and re-measurement
fees, taxes and other related expenses, are deferred and amortised using the straight-line method over the legal terms of the
related land rights of thirty-five years.
Advances/Guarantees under the Plasma Programme
The Indonesian authorities require oil palm plantations to develop the surrounding local plantation areas held by small
landholders when applying for land rights for oil palm plantations. This form of assistance to local small landholders is generally
known as the Plasma Programme. Under the Plasma Programme, a plantation developer transfers a designated land area to the
small landholders, who then operate the plasma plantation under the supervision of the plantation developer.
Certain subsidiaries of the group have implemented the Plasma Programme using plantation business cooperatives scheme
(Kredit Koperasi Primer Anggota or “KKPA”), cooperation in local community palm oil plantation scheme (Kebun Kelapa Sawit
Rakyat or “KKSR”), and independent plasma scheme (Plasma Mandiri).
Under the KKPA scheme, the villagers typically occupy the land and the group helps to develop the land and manage
the oil palms to maturity. The development costs are funded by bank loans, which are guaranteed by the group using the
aforementioned land certificates and/or other appropriate forms of security as collateral. Upon maturity of the oil palms, the land
will be maintained and managed by the villagers or in the future by the group. The harvested fresh fruit bunches (“FFB”) will then
be sold to the group. The villagers will repay the loan facilities from a portion of the FFB sale price. The group obtains a power
of attorney to manage the accounts of the villagers into which all monies from the sale of FFB will be deposited. This power of
attorney allows the group to withdraw funds from such accounts to pay for all the villagers operating costs and expenses. Under
the KKSR scheme, the villagers also typically occupy the land. The group will provide seedlings and the regional authorities will
provide fertiliser to the villagers. Post-harvest, the FFB will be sold to the group and part of the sale proceeds will be paid to the
group and the regional authorities as payment for the seedlings and fertiliser respectively. Plasma Mandiri is a scheme whereby
the group will provide the seedlings to the villagers, and the villagers will plant and maintain the plantations. Post-harvest, the
FFB will be sold to the group and part of the sale proceeds will be paid to the group as payment for the seedlings provided.
There is no governmental involvement under this scheme.
Costs incurred during development up to conversion of the oil palm plantations and temporary funding to the villagers for
working capital purposes are included in other receivables in the statement of financial position. The funds received from the
designated banks on behalf of villagers for the development and operations of the plantations are offset against advances under
plasma program in the statement of financial position.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
51
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Biological Assets
Biological assets are stated at fair values less estimated point-of-sale costs. These include mature and immature oil palm
plantations. Oil palm trees have an average life that ranges from 23 to 25 years, with the first 3 to 4 years as immature and
the remaining years as mature. In general, an oil palm plantation takes between 3 and 4 years to reach maturity from the time
seedlings are planted.
As market determined prices or values are not readily available for plantations in their present condition, the group uses the
present value of expected net future cash flows (excluding any future cash flows for financing the assets, taxation, or reestablishing plantations after harvest) from the asset, discounted at a current market determined pre-tax rate in measuring the
fair values. The fair value of the oil palm plantations is measured by reference to independent professional valuations using the
discounted cash flows for the underlying biological assets. The expected cash flows from the whole life cycle of the oil palm
plantations is determined using the long term forecast of market prices of the estimated yield of the agriculture produce, being
fresh fruit bunches (“FFB”), net of maintenance and harvesting costs and any costs required to bring the oil palm plantations to
maturity. The estimated yield of the oil palm plantations is affected by the age of the oil palm trees, the location, soil type and
infrastructure. The market price of the fresh fruit bunches is largely dependent on the prevailing and projected market prices
of the processed products after harvest, being crude palm oil (“CPO”) and crude palm kernel oil (“CPKO”). Point-of-sale costs
include all costs that would be necessary to sell the assets.
The changes in fair value less estimated point-of-sale costs and from the change in fair value less estimated point-of-sale costs
at each reporting date are included in the profit or loss for the period in which they arise. The fair value is measured twice every
year, at the end of second quarter and at the end of the year.
Leases
Whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, that
is, whether (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets (the asset); and (b) the
arrangement conveys a right to use the asset. Leases are classified as finance leases if substantially all the risks and rewards of
ownership are transferred to the lessee. All other leases are classified as operating leases. At the commencement of the lease
term, a finance lease is recognised as an asset and as a liability in the statement of financial position at amounts equal to the
fair value of the leased asset or, if lower, the present value of the minimum lease payments, each measured at the inception of
the lease. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit
in the lease, if this is practicable to determine, the lessee’s incremental borrowing rate is used. Any initial direct costs of the
lessee are added to the amount recognised as an asset. The excess of the lease payments over the recorded lease liability
are treated as finance charges which are allocated to each reporting year during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the reporting
years in which they are incurred. The assets are depreciated as owned depreciable assets. Leases where the lessor effectively
retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. For operating
leases, lease payments are recognised as an expense in profit or loss on a straight-line basis over the term of the relevant lease
unless another systematic basis is representative of the time pattern of the user’s benefit, even if the payments are not on that
basis. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense. Rental income
from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease unless another
systematic basis is representative of the time pattern of the user’s benefit, even if the payments are not on that basis. Initial
direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and
recognised on a straight-line basis over the lease term.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
52
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Segment Reporting
The reporting entity discloses financial and descriptive information about its consolidated reportable segments. Reportable
segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are
components about which separate financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing the performance. Generally, financial information is reported on
the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to
operating segments.
Subsidiaries
A subsidiary is an entity including unincorporated and special purpose entity that is controlled by the reporting entity and
the reporting entity is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. The existence and effect of substantive potential voting rights that
the reporting entity has the practical ability to exercise (that is, substantive rights) are considered when assessing whether the
reporting entity controls another entity.
In the reporting entity’s separate financial statements, an investment in a subsidiary is accounted for at cost less any allowance
for impairment in value. Impairment loss recognised in profit or loss for a subsidiary is reversed only if there has been a change
in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying
value and the net book value of the investment in a subsidiary are not necessarily indicative of the amount that would be realised
in a current market exchange.
Joint Arrangements – Joint Venture
A joint arrangement (that is, either a joint operation or a joint venture, depending on the rights and obligations of the jointly
controlling parties to the arrangement), is one in which the reporting entity is party to an arrangement of which two or more
parties have joint control, which is the contractually agreed sharing of control of the arrangement; it exists only when decisions
about the relevant activities (that is, activities that significantly affect the returns of the arrangement) require the unanimous
consent of the parties sharing control. In a joint venture, the parties with joint control have rights to the net assets of the
arrangement. The reporting interests in joint ventures are recognised using the equity method in accordance with FRS 28
Investments in Associates and Joint Ventures.
Under the equity method the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in
the investor’s share of the investee’s net assets.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
53
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Joint Arrangements – Joint Venture (Cont’d)
In the consolidated financial statements, the accounting for investments in a joint venture is on the equity method. Under
the equity method the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the
investor’s share of the investee’s net assets. The carrying value and the net book value of the investment in the joint venture
are not necessarily indicative of the amounts that would be realised in a current market exchange. The investor’s profit or
loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the
investee’s other comprehensive income. Losses of a joint venture in excess of the reporting entity’s interest in the relevant joint
venture are not recognised except to the extent that the reporting entity has an obligation. Profits and losses resulting from
transactions between the reporting entity and a joint venture are recognised in the financial statements only to the extent
of unrelated reporting entity’s interests in the joint venture. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of joint ventures are changed where necessary to ensure
consistency with the policies adopted by the reporting entity. The reporting entity discontinues the use of the equity method from
the date that when its investment ceases to be a joint venture and accounts for the investment in accordance with FRS 39 from
that date. Any gain or loss is recognised in profit or loss. Any investment retained in the former joint venture is measured at fair
value at the date that it ceases to be a joint venture.
In the company’s separate financial statements, an investment in a joint venture is accounted for at cost less any allowance for
impairment in value. Impairment loss recognised in profit or loss for a joint venture is reversed only if there has been a change
in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying
value and the net book value of an investment in the joint venture are not necessarily indicative of the amounts that would be
realised in a current market exchange.
Business Combinations
Business combinations are accounted for by applying the acquisition method. There were no acquisitions during the reporting
year.
Non-Controlling Interests
The non-controlling interest is equity in a subsidiary not attributable, directly or indirectly, to the reporting entity as the parent.
The non-controlling interest is presented in the consolidated statement of financial position within equity, separately from the
equity of the owners of the parent. For each business combination, any non-controlling interest in the acquiree (subsidiary)
is initially measured either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net
assets. Where the non-controlling interest is measured at fair value, the valuation techniques and key model inputs used are
disclosed in the relevant Note. Profit or loss and each component of other comprehensive income are attributed to the owners
of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to
the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
54
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Impairment of Non-Financial Assets
Irrespective of whether there is any indication of impairment, an annual impairment test is performed at the same time every
year on an intangible asset with an indefinite useful life or an intangible asset not yet available for use. The carrying amount
of other non-financial assets is reviewed at each end of the reporting year for indications of impairment and where an asset
is impaired, it is written down through profit or loss to its estimated recoverable amount. The impairment loss is the excess
of the carrying amount over the recoverable amount and is recognised in profit or loss unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as a revaluation decrease. The recoverable amount of an
asset or a cash-generating unit is the higher of its fair value less costs of disposal and its value in use. When the fair value less
costs of disposal method is used, any available recent market transactions are taken into consideration. When the value in use
method is adopted, in assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). At each end of the reporting year non-financial assets other than goodwill with impairment
loss recognised in prior periods are assessed for possible reversal of the impairment. An impairment loss is reversed only
to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been measured, net of
depreciation or amortisation, if no impairment loss had been recognised.
Inventories
Inventories are measured at the lower of cost (weighted average) and net realisable value. Net realisable value is the estimated
selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to
make the sale. A write down on cost is made where the cost is not recoverable or if the selling prices have declined. Cost
includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location
and condition.
Financial Assets
Initial recognition and measurement and derecognition:
A financial asset is recognised on the statement of financial position when, and only when, the entity becomes a party to the
contractual provisions of the instrument. The initial recognition of financial assets is at fair value normally represented by the
transaction price. The transaction price for financial asset not classified at fair value through profit or loss includes the transaction
costs that are directly attributable to the acquisition or issue of the financial asset. Transaction costs incurred on the acquisition
or issue of financial assets classified at fair value through profit or loss are expensed immediately. The transactions are recorded
at the trade date method.
Irrespective of the legal form of the transactions performed, financial assets are derecognised when they pass the “substance
over form” based on the derecognition test prescribed by FRS 39 relating to the transfer of risks and rewards of ownership
and the transfer of control. Financial assets and financial liabilities are offset and the net amount is reported in the statement of
financial position if there is currently a legally enforceable right to offset the recognised amounts and there is an intention to settle
on a net basis, to realise the assets and settle the liabilities simultaneously.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
55
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Financial Assets (Cont’d)
Subsequent measurement:
Subsequent measurement based on the classification of the financial assets in one of the following categories under FRS 39 is
as follows:
#1.Financial assets at fair value through profit or loss: Assets are classified in this category when they are incurred
principally for the purpose of selling or repurchasing in the near term (trading assets) or are derivatives (except for a
derivative that is a designated and effective hedging instrument) or have been classified in this category because the
conditions are met to use the “fair value option” and it is used. All changes in fair value relating to assets at fair value
through profit or loss are recognised directly in profit or loss.
#2.Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. Assets that are for sale immediately or in the near term are not classified in this
category. These assets are carried at amortised costs using the effective interest method (except that short-duration
receivables with no stated interest rate are normally measured at original invoice amount unless the effect of imputing
interest would be significant) minus any reduction (directly or through the use of an allowance account) for impairment
or uncollectibility. Impairment charges are provided only when there is objective evidence that an impairment loss has
been incurred as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and
that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated. The methodology ensures that an impairment loss is not recognised on the
initial recognition of an asset. Losses expected as a result of future events, no matter how likely, are not recognised.
For impairment, the carrying amount of the asset is reduced through use of an allowance account. The amount of
the loss is recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an
event occurring after the impairment loss was recognised. Typically the trade and other receivables are classified in this
category.
#3.Held-to-maturity financial assets: As at end of the reporting year date there were no financial assets classified in this
category.
#4.
Cash and Cash Equivalents
Cash and cash equivalents include bank and cash balances, on demand deposits and any highly liquid debt instruments
purchased with an original maturity of three months or less. For the statement of cash flows the item includes cash and
cash equivalents less cash subject to restriction and bank overdrafts payable on demand that form an integral part of cash
management. Other financial assets and financial liabilities at fair value through profit or loss are presented within the section on
operating activities as part of changes in working capital in the statement of cash flows.
KENCANA AGRI LIMITED
Available-for-sale financial assets: As at end of the reporting year date there were no financial assets classified in this
category.
ANNUAL REPORT 2014
56
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Derivatives
All derivatives are initially recognised and subsequently carried at fair value. The policy is to use derivatives only for nonspeculative purposes. Certain derivatives are entered into in order to hedge some transactions and all the strict hedging criteria
prescribed by FRS 39 are not met. In those cases, even though the transaction has its economic and business rationale, hedge
accounting cannot be applied. As a result, changes in the fair value of those derivatives are recognised directly in profit or loss
and the hedged item follows normal accounting policies.
The group has committed purchase and sales contracts for crude palm oil and palm kernel cake that are entered into as part
of its processing and sale activities. The prices and physical delivery of the sales and purchases are fixed in the contracts and
these executory contracts are not recognised in the financial statements until physical deliveries take place.
The group enters into non-physical delivery forward contracts to manage the price risk of its physical inventory and to hedge
against fluctuations in commodity prices. Prices on commodity exchanges are quoted up to 3 to 5 months forward. The gains or
losses arising from matched non-physical delivery forward contracts are recognised immediately in profit or loss.
Outstanding forward contracts are valued at their fair values at the end of the reporting year. Where available, quoted market
prices are used as a measure of fair values for the outstanding contracts. Where the quoted market prices are not available, fair
values are based on management’s best estimate and are arrived at by reference to the market prices of other contracts that are
substantially similar. Unrealised losses arising from the valuation are set off against unrealised gains on an aggregate basis.
Financial Liabilities
Initial recognition, measurement and derecognition:
A financial liability is recognised on the statement of financial position when, and only when, the entity becomes a party to the
contractual provisions of the instrument and it is derecognised when the obligation specified in the contract is discharged or
cancelled or expires. The initial recognition of financial liability is at fair value normally represented by the transaction price.
The transaction price for financial liability not classified at fair value through profit or loss includes the transaction costs that
are directly attributable to the acquisition or issue of the financial liability. Transaction costs incurred on the acquisition or issue
of financial liability classified at fair value through profit or loss are expensed immediately. The transactions are recorded at the
trade date method. Financial liabilities including bank and other borrowings are classified as current liabilities unless there is an
unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting year.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
57
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Financial Liabilities (Cont’d)
Subsequent measurement:
Subsequent measurement based on the classification of the financial liabilities in one of the following two categories under FRS
39 is as follows:
#1.Liabilities at fair value through profit or loss: Liabilities are classified in this category when they are incurred principally for
the purpose of selling or repurchasing in the near term (trading liabilities) or are derivatives (except for a derivative that
is a designated and effective hedging instrument) or have been classified in this category because the conditions are
met to use the “fair value option” and it is used. Financial guarantee contracts are initially recognised at fair value and
are subsequently measured at the greater of (a) the amount measured in accordance with FRS 37 and (b) the amount
initially recognised less, where appropriate, cumulative amortisation recognised in accordance with FRS 18. All changes
in fair value relating to liabilities at fair value through profit or loss are charged to profit or loss as incurred.
#2.
Classification of Equity and Liabilities
A financial instrument is classified as a liability or as equity in accordance with the substance of the contractual arrangement on
initial recognition. Equity instruments are contracts that give a residual interest in the net assets of the reporting entity. Where
the financial instrument does not give rise to a contractual obligation on the part of the issuer to make payment in cash or
kind under conditions that are potentially unfavourable, it is classified as an equity instrument. Ordinary shares are classified as
equity. Equity instruments are recognised at the amount of proceeds received net of incremental costs directly attributable to
the transaction. Dividends on equity are recognised as liabilities when they are declared. Interim dividends are recognised when
declared by the directors.
Fair Value Measurement
Other financial liabilities: All liabilities, which have not been classified as in the previous category fall into this residual
category. These liabilities are carried at amortised cost using the effective interest method. Trade and other payables and
borrowings are usually classified in this category. Items classified within current trade and other payables are not usually
re-measured, as the obligation is usually known with a high degree of certainty and settlement is short-term.
Fair value is taken to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (that is, an exit price). It is a market-based measurement, not an entityspecific measurement. When measuring fair value, management uses the assumptions that market participants would use when
pricing the asset or liability under current market conditions, including assumptions about risk. The entity’s intention to hold
an asset or to settle or otherwise fulfil a liability is not taken into account as relevant when measuring fair value. In making
the fair value measurement, management determines the following: (a) the particular asset or liability being measured (these
are identified and disclosed in the relevant notes below); (b) for a non-financial asset, the highest and best use of the asset
and whether the asset is used in combination with other assets or on a stand-alone basis; (c) the market in which an orderly
transaction would take place for the asset or liability; and (d) the appropriate valuation techniques to use when measuring fair
value. The valuation techniques used maximise the use of relevant observable inputs and minimise unobservable inputs. These
inputs are consistent with the inputs a market participant may use when pricing the asset or liability.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
58
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Fair Value Measurement (Cont’d)
The fair value measurements and related disclosures categorise the inputs to valuation techniques used to measure fair value by
using a fair value hierarchy of three levels. These are recurring fair value measurements unless stated otherwise in the relevant
notes to the financial statements. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset
or liability. The level is measured on the basis of the lowest level input that is significant to the fair value measurement in its
entirety. Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting year.
If a financial instrument measured at fair value has a bid price and an ask price, the price within the bid-ask spread or midmarket pricing that is most representative of fair value in the circumstances is used to measure fair value regardless of where the
input is categorised within the fair value hierarchy. If there is no market, or the markets available are not active, the fair value is
established by using an acceptable valuation technique.
The carrying values of current financial instruments approximate their fair values due to the short-term maturity of these
instruments and the disclosures of fair value are not made when the carrying amount of current financial instruments is a
reasonable approximation of the fair value. The fair values of non-current financial instruments may not be disclosed separately
unless there are significant differences at the end of the reporting year and in the event the fair values are disclosed in the
relevant notes to the financial statements.
Provisions
A liability or provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. A provision is made using best estimates of the amount required in
settlement and where the effect of the time value of money is material, the amount recognised is the present value of the
expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised
as interest expense. Changes in estimates are reflected in profit or loss in the reporting year they occur.
Critical Judgements, Assumptions and Estimation Uncertainties
The critical judgements made in the process of applying the accounting policies that have the most significant effect on
the amounts recognised in the financial statements and the key assumptions concerning the future, and other key sources
of estimation uncertainty at the end of the reporting year, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities currently or within the next reporting year are discussed below. These estimates and
assumptions are periodically monitored to ensure they incorporate all relevant information available at the date when financial
statements are prepared. However, this does not prevent actual figures differing from estimates.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
59
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Critical Judgements, Assumptions and Estimation Uncertainties (Cont’d)
Biological assets:
The oil palm plantations are stated at fair value less estimated point-of-sale costs. This measurement is significant and the
process is complex and highly judgmental and is based on assumptions that are affected by expected future market
or economic conditions. As a result, judgement is required in evaluating the assumptions and methodologies used by
management, in particular those relating to the forecasted revenue growth and profit margins. The disclosures about
measurement of fair values are included in Note 18, which explains that small changes in the key assumptions used could give
rise to gains and losses. Actual outcomes could vary from these estimates.
Income tax amounts:
The group has exposure to income taxes in mainly two jurisdictions, Indonesia and Singapore. The entity recognises tax
liabilities and tax assets based on an estimation of the likely taxes due, which requires significant judgement as to the ultimate
tax determination of certain items. Where the actual amount arising from these issues differs from these estimates, such
differences will have an impact on income tax and deferred tax amounts in the period when such determination is made. In
addition management judgement is required in determining the amount of current and deferred tax recognised and the extent
to which amounts should or can be recognised. A deferred tax asset is recognised for unused tax losses if it is probable
that the entity will earn sufficient taxable profit in future periods to benefit from a reduction in tax payments. This involves the
management making assumptions within its overall tax planning activities and periodically reassessing them in order to reflect
changed circumstances as well as tax regulations. Moreover, the measurement of a deferred tax asset or liability reflects the
manner in which the entity expects to recover the asset’s carrying value or settle the liability. As a result, due to their inherent
nature assessments of likelihood are judgmental and not susceptible to precise determination. The income tax amounts are
disclosed in the Note on income tax.
Property, plant and equipment:
An assessment is made for the reporting year whether there is any indication that the asset may be impaired. If any such
indication exists, an estimate is made of the recoverable amount of the asset. The recoverable amounts of cash-generating
units if applicable is measured based on the fair value less costs of disposal or value in use calculations. It is impracticable
to disclose the extent of the possible effects. It is reasonably possible, based on existing knowledge, that outcomes within
the next reporting year that are different from assumptions could require a material adjustment to the carrying amount of the
balances affected. The carrying amounts of the specific asset or class of assets at the end of the reporting year affected by the
assumption are disclosed in the Note on property, plant and equipment.
Useful lives of property, plant and equipment:
The estimates for the useful lives and related depreciation charges for property, plant and equipment is based on commercial
and production factors which could change significantly as a result of innovations and in response to market conditions. The
depreciation charge is increased where useful lives are less than previously estimated lives, or the carrying amounts written off or
written down for technically obsolete assets that have been abandoned. It is impracticable to disclose the extent of the possible
effects. It is reasonably possible, based on existing knowledge, that outcomes within the next reporting year that are different
from assumptions could require a material adjustment to the carrying amount of the balances affected. The carrying amounts of
the specific assets at the end of the reporting year affected by the assumption are US$58,234,000 (2013: US$65,016,000).
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
60
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Critical Judgements, Assumptions and Estimation Uncertainties (Cont’d)
Land use rights:
The group holds location permits or Ijin Lokasi in respect of plantation land in Indonesia allocated by the Indonesian authorities.
Upon the completion of the acquisition of such land, the group will be entitled to begin the process of application for Business
Usage Rights (“Hak Guna Usaha” or “HGU”) certificates over such land. The Ijin Lokasi may not be extended by the Indonesian
Authorities and will automatically expire if the group fails to acquire the land covered in the Ijin Lokasi within the stipulated validity
period of the said Ijin Lokasi. In such an event, the group may lose their rights granted by the Indonesian Authorities under the
Ijin Lokasi in respect of the remaining area covered by the original Ijin Lokasi.
At the date of this report, the group is in the final process of obtaining HGU certificates for conversion in respect of 6,411
hectares of Kadastral land. Kadastral land is land that is measured to determine the actual land area for the HGU title based
on the application submitted by the group. The group is also in the process of acquiring and clearing land held under their land
bank prior to the issuance of Kadastral for such land. Prior to the issuance of the HGU certificates, such land is considered as
uncertified land. Pending the issue of HGU certificates, the group is permitted to physically occupy and build on the uncertified
land and to plant and harvest crops. However, as the administration of land laws and regulations may be subject to a certain
degree of discretion by the Indonesian authorities, there is no assurance with certainty that the relevant authorities would not
take a different approach or view as regard the uncertified land, its use, registration and future disposal for value. Should the
relevant authorities take a different approach or view as regards the same and the group is unable to convert the uncertified land
to HGU certified land, the group’s interest in the uncertified land as well as the use of such land may be adversely affected. At
the end of the reporting year, the uncertified land amounted to 6,411 hectares (see Note 21).
Pension and employee benefits:
The determination of the group’s obligations and cost for pension and employee benefits liability is dependent on its selection
of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions include among others,
discount rates, future annual salary increases, annual employee turnover rates, disability rates, retirement age and mortality
rates.
Actual results that differ from the assumptions are recognised immediately in profit or loss as and when they occur. While the
group believes that its assumptions are reasonable and appropriate, significant differences in the group’s actual experience or
significant changes in the assumptions may materially affect its estimated liabilities for pension and employee benefits and net
employee benefits expense. The carrying amount of the estimated liabilities for employee benefits as at 31 December 2014 was
US$4,216,000 (2013: US$3,429,000).
Advances/guarantees under the plasma programme:
The group has provided guarantees in respect of loans granted by banks to villagers under the Plasma Programme. The villagers
will repay the bank loans from the sale proceeds of FFB. In the event the villagers default on their obligations to repay the bank
loans, the banks may call upon the guarantees, which have been provided by the group to the banks to secure the loans of
the villagers. The entity recognises expected losses if any which require significant judgement. Details of the bank guarantees
provided are disclosed in Note 33 to these financial statements.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
61
notes to the financial STATEMENTS
31 December 2014
2.
Summary of Significant Accounting Policies (Cont’d)
Critical Judgements, Assumptions and Estimation Uncertainties (Cont’d)
Environmental regulations:
The main environmental concerns relate to the discharge of effluent arising from the milling of FFB and clearance of land and
forest for developing the group’s plantations. The main social concern relates to possible conflicts that may arise with local
communities in the areas around the plantations. Any environmental claims or failure to comply with any present or future
regulations could result in the imposition of fines, the suspension or a cessation of the group’s operations.
The group’s plantations are subject to both scheduled and unscheduled inspections by various Indonesian government
agencies, each of whom may have differing perspectives or standards from the others. These agencies have the power to
examine and control the group’s compliances with their environmental regulations, including the imposition of fines and
revocation of licenses and land rights. However, governmental agencies may adopt additional regulations that would require the
group to spend additional funds on environmental matters.
Environmental regulations and social practices in Indonesia tend to be less exact than in developed countries. It is possible that
these regulations could become more exact in the future and compliance with them may involve incurring significant costs. This
may consequently have an adverse effect on the group’s operations. Any failure to comply with the laws and regulations could
subject the group to further liabilities.
It is impracticable to disclose the extent of the possible effects of the above matters on the consolidated financial statements of
the group.
Measurement of impairment of subsidiaries and joint ventures:
Where an investee is in net equity deficit and has suffered operating losses a test is made whether the investment in the investee
has suffered any impairment. This determination requires significant judgement. An estimate is made of the future profitability of
the investee, and the financial health of and near-term business outlook for the investee, including factors such as industry and
sector performance, and operational and financing cash flow. It is impracticable to disclose the extent of the possible effects.
It is reasonably possible, based on existing knowledge, that outcomes within the next reporting year that are different from
assumptions could require a material adjustment to the carrying amount of the balances affected. The carrying amount of the
investments in subsidiaries at the end of the reporting year affected by the assumption is US$299,000 (2013: US$1,397,000).
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
62
notes to the financial STATEMENTS
31 December 2014
3.
Related Party Relationships and Transactions
FRS 24 defines a related party as a person or entity that is related to the reporting entity and it includes (a) A person or a
close member of that person’s family if that person: (i) has control or joint control over the reporting entity; (ii) has significant
influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent
of the reporting entity. (b) An entity is related to the reporting entity if any of the following conditions apply: (i) The entity and the
reporting entity are members of the same group. (ii) One entity is an associate or joint venture of the other entity. (iii) Both entities
are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of
the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an
entity related to the reporting entity. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person
identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of
a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provides key management personnel
services to the reporting entity or to the parent of the reporting entity.
3A
Related Companies:
The company is a subsidiary of Kencana Holdings Pte Ltd, incorporated in Singapore that is also the company’s ultimate parent
company. Related companies in these financial statements include the members of the ultimate parent company’s group of
companies.
The ultimate controlling party is Henry Maknawi, a director.
There are transactions and arrangements between the reporting entity and members of the group and the effects of these on
the basis determined between the parties are reflected in these financial statements. The intercompany balances are unsecured
without fixed repayment terms and interest unless stated otherwise. For any non-current balances and financial guarantees no
interest or charge is imposed unless stated otherwise.
Intragroup transactions and balances that have been eliminated in these consolidated financial statements are not disclosed as
related party transactions and balances below.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
63
notes to the financial STATEMENTS
31 December 2014
3.
Related Party Relationships and Transactions (Cont’d)
3B
Related Parties Other than Related Companies:
There are transactions and arrangements between the reporting entity and related parties and the effects of these on the basis
determined between the parties are reflected in these financial statements. The related party balances are unsecured without
fixed repayment terms and interest unless stated otherwise. For any non-current balances and financial guarantees no interest
or charge is imposed unless stated otherwise.
Significant related party transactions:
In addition to transactions and balances disclosed elsewhere in the notes to the financial statements, this item includes the
following:
Group
Related Party
2014
2013
US$’000
US$’000
Sales of commodities
Purchases of commodities
30,763
22,678
(9,838)
(1,039)
Wilmar International Limited has significant influence over and a 20% interest in the reporting entity.
Group
Related Parties
2014
2013
US$’000
US$’000
Providing of services
Lease related services
Receiving of service expense
–
(51)
(6,408)
268
(57)
(4,400)
The related parties PT Berkat Wahana Sukses and PT Alamindo Sejahtera Persada, are companies in which directors or their
immediate family members have a significant or controlling interest.
Group
Sales of commodities
Interest income
Management fee income
Purchase of service
Purchases of commodities
KENCANA AGRI LIMITED
Joint Ventures
2014
2013
US$’000
US$’000
40,248
1,744
90
(2)
–
41,726
–
–
–
(53,536)
ANNUAL REPORT 2014
64
notes to the financial STATEMENTS
31 December 2014
3.
Related Party Relationships and Transactions (Cont’d)
3C
Key Management Compensation:
Group
Salaries and other short-term employee benefits
Post-employment benefits
2014
US$’000
2013
US$’000
2,414
18
2,086
17
The above amounts are included under employee benefits expense. Included in the above amounts are the following items:
Group
Remuneration of directors of the company
Remuneration of directors of the subsidiaries
Fees to directors of the company
2014
US$’000
2013
US$’000
1,234
896
156
1,063
766
159
Further information about the remuneration of individual directors is provided in the report on corporate governance.
Key management personnel include directors and those persons having authority and responsibility for planning, directing and
controlling the activities of the group, directly or indirectly. The above amounts for key management compensation are for all the
directors and other key management personnel.
3D
Other Receivables from and Other Payables to Related Parties:
The trade transactions and the trade receivables and payables balances arising from sales and purchases of goods and services
are disclosed elsewhere in the notes to the financial statements.
The movements in other receivables from and other payables to related parties are as follows:
Group
Related Parties
2014
2013
US$’000
US$’000
Other receivables:
Balance at beginning of the year, net
1
1
Balance at end of the year (Note 23)
1
1
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
65
notes to the financial STATEMENTS
31 December 2014
3.
Related Party Relationships and Transactions (Cont’d)
3D
Other Receivables from and Other Payables to Related Parties: (Cont’d)
Company
Subsidiaries
2014
2013
US$’000
US$’000
Other receivables:
Balance at beginning of the year, net
Amounts paid in and settlement of liabilities on behalf of group
27,160
(2,252)
38,935
(11,775)
Balance at end of the year (Note 23)
24,908
27,160
2014
US$’000
2013
US$’000
Sale of goods
Rendering of services
Rental income
Management fee income
172,313
3,755
346
90
279,749
3,749
554
–
Continuing operations
176,504
284,052
113
862
176,617
284,914
2014
US$’000
2013
US$’000
Cost of inventories produced and purchases
Cost of services rendered
Realised net gain on non-physical delivery forward contracts
Unrealised net loss on non-physical delivery forward contracts
131,184
5,307
(78)
–
250,747
3,252
(194)
126
Continuing operations
136,413
253,931
4.Revenue
Discontinued operations (Note 13)
5.
Cost of Sales
Discontinued operations
KENCANA AGRI LIMITED
437
2,110
136,850
256,041
ANNUAL REPORT 2014
66
notes to the financial STATEMENTS
31 December 2014
6.
Other Gains and (Other Losses)
2014
US$’000
2013
US$’000
Loss on disposal of property, plant and equipment
Allowance for impairment on trade receivables
Foreign exchange transactions losses
Unrealised loss on forward currency exchange contracts
Realised gain/(loss) on forward currency exchange contracts
Cost of land swap with plasma holder
Miscellaneous
(12)
–
(5,925)
(1,717)
618
(633)
(46)
(28)
(900)
(20,510)
(570)
(1,437)
–
54
Continuing operations
(7,715)
(23,391)
(24)
85
(7,739)
(23,306)
Presented in profit or loss as:
Other gains
Other losses
618
(8,333)
54
(23,445)
Net
(7,715)
(23,391)
2014
US$’000
2013
US$’000
7,263
(287)
11,662
(673)
6,976
10,989
2014
US$’000
2013
US$’000
1,274
433
1,516
596
Discontinued operations – Foreign exchange transactions (losses)/gains
7.
Gain on Fair Value Changes in Biological Assets and Other Receivables
Gain on fair value changes in biological assets (Note 18)
Loss on fair value changes in other receivables (Note 33)
8.
Distribution Costs
The major components include the following:
Freight costs
Storage costs
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
67
notes to the financial STATEMENTS
31 December 2014
9.
Finance Costs
2014
US$’000
2013
US$’000
12,503
8,773
8,955
7,071
21,458
15,844
–
1,675
21,458
17,519
2014
US$’000
2013
US$’000
Employee benefits expense
Contribution to defined contribution plans
Other post-employment benefits (Note 29)
5,953
102
839
7,208
115
831
Employee benefits expense included in cost of sales, administrative expenses and
distribution costs
6,894
8,154
2014
US$’000
2013
US$’000
Interest expense
Capitalised in biological assets (Note 18)
Continuing operations
Discontinued operations
10.
Employee Benefits Expense
11.
Income Tax
11A.
Components of Tax Expense Recognised in Profit or Loss include:
Tax charge on continuing operations:
Current tax expense:
Current tax expense
Under/(Over) adjustments to current tax in respect of prior period
1,121
872
1,998
(452)
Subtotal
1,993
1,546
Deferred tax expense/(income):
Current deferred tax expense/(income)
Under/(Over) adjustments to deferred tax in respect of prior period
3,134
458
(1,716)
(288)
Subtotal
3,592
(2,004)
Total income tax expense/(income) on continuing operations
5,585
(458)
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
68
notes to the financial STATEMENTS
31 December 2014
11.
Income Tax (Cont’d)
11A.
Components of Tax Expense Recognised in Profit or Loss include: (Cont’d)
The following table illustrates the detail of the tax charged to profit or loss on discontinued operations:
2014
US$’000
2013
US$’000
Tax charge on discontinued operations:
Current tax expense:
Current tax expense
–
–
Subtotal
–
–
Deferred tax income:
Current deferred tax income
–
(787)
Subtotal
–
(787)
Total income tax income on discontinued operations (Note 13)
–
(787)
5,585
(1,245)
Total income tax expense/(income)
Note 13 provides additional details with regards to current and deferred tax on discontinued operations.
Substantially all of the group’s operations are located in Indonesia. Companies in Indonesia are generally subject to a tax rate of
25% (2013: 25%). Accordingly, the Indonesian statutory tax rate of 25% (2013: 25%) is used in the reconciliation below.
The income tax in profit or loss varied from the amount of income tax amount determined by applying the Indonesian statutory
income tax rate to profit before income tax as a result of the following differences:
2014
US$’000
2013
US$’000
15,146
(9,611)
(2,338)
(2,377)
12,808
(11,988)
Income tax expense/(income) at the applicable tax rate
Non allowable items
Effect of different tax rates in different countries
Unrecognised deferred tax assets
Under/(Over) provision of deferred tax for prior period
Under/(Over) adjustments to income tax in respect of prior period
Other items less than 3% each
3,202
590
87
70
458
872
306
(2,997)
759
352
1,426
(288)
(452)
(45)
Total income tax expense/(income)
5,585
(1,245)
Profit/(Loss) before tax
Less: Share of loss from equity-accounted joint ventures
Total
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
69
notes to the financial STATEMENTS
31 December 2014
11.
Income Tax (Cont’d)
11A.
Components of Tax Expense Recognised in Profit or Loss include: (Cont’d)
There are no income tax consequences of dividends to owners of the company.
The amount of income taxes outstanding as at the end of the reporting year was US$2,334,000 (2013: US$2,200,000). Such
an amount is net of tax advances, which according to the tax rules in Indonesia, were paid before the reporting year end.
11B.
Deferred Tax Expense/(Income) Recognised in Profit or Loss include:
11C.
2014
US$’000
2013
US$’000
Continuing operations:
Fair value changes in biological assets and others
Tax losses carried forward
Deferred tax assets not recognised
782
2,740
70
1,391
(4,821)
1,426
Total deferred income tax expense/(income) recognised in profit or loss
3,592
(2,004)
Discontinued operations:
Tax losses carried forward
–
(787)
Total deferred income tax income recognised in profit or loss
–
(787)
Tax Expense Recognised in Other Comprehensive Income include:
2014
US$’000
2013
US$’000
Deferred tax:
Exchange differences on translation to presentation currency
1,854
6,435
Total tax expense recognised in other comprehensive income
1,854
6,435
The above amounts are included in the exchange differences on translating IDR functional currency to US$ presentation
currency in other comprehensive income.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
70
notes to the financial STATEMENTS
31 December 2014
11.
Income Tax (Cont’d)
11D.
Deferred Tax Balance in the Statement of Financial Position:
Group
From deferred tax assets (liabilities) recognised in profit or loss:
Fair value changes in biological assets and others
Tax loss carryforwards
Unrecognised deferred tax assets
From deferred tax assets recognised in other comprehensive income:
Exchange differences on translation to presentation currency
Net balance from continuing operation
2014
US$’000
2013
US$’000
(44,019)
9,986
(2,077)
(43,237)
12,726
(2,007)
8,997
7,143
(27,113)
(25,375)
–
1,440
(27,113)
23,935
Deferred tax on discontinued operation
Deferred tax assets
Net balance
It is impracticable to estimate the amount expected to be settled or used within one year.
No deferred tax asset for the tax losses (including deductible temporary differences, unused tax losses and unused tax credits)
has been recognised in respect of the remaining for the above balance, as the future profit streams are not probable against
which the deductible temporary difference can be utilised.
Included in unrecognised tax losses are losses that will expire as follows:
Unrecognised deferred tax assets:
Expiring in year
Indonesian companies
2014
2015
2016
2017
2018
2019
Singapore companies
Unlimited period
Foreign exchange difference
KENCANA AGRI LIMITED
Tax losses
2014
US$’000
2013
US$’000
Unrecognised
deferred tax assets
2014
2013
US$’000
US$’000
–
426
8
45
150
–
6
4
17
136
692
–
–
107
35
54
194
90
2
1
4
34
173
–
7,090
589
6,859
314
1,205
392
1,166
627
8,308
8,028
2,077
2,007
ANNUAL REPORT 2014
71
notes to the financial STATEMENTS
31 December 2014
11.
Income Tax (Cont’d)
11D.
Deferred Tax Balance in the Statement of Financial Position: (Cont’d)
For the Singapore companies, the realisation of the future income tax benefits from tax losses carried forward is available for an
unlimited future period subject to the conditions imposed by law including the retention of majority shareholders as defined. For
the Indonesian companies, the realisation of the future income tax benefits from tax loss carryforwards is available for a period of
5 years subject to the conditions imposed by Indonesian laws.
No deferred tax liability of approximately US$13,430,000 (2013: US$11,782,000) has been recognised for taxes that would be
payable on the undistributed earnings of the group’s foreign subsidiaries as the group has determined that these undistributed
earnings will not be distributed in the foreseeable future.
12.
Items in the Statement of Profit or Loss and Other Comprehensive Income
In addition to the charges and credits disclosed elsewhere in the notes to the financial statements, the profit or loss includes the
following charges:
Group
Audit fees to independent auditors included under administrative expenses:
– company’s auditors
– other auditors
Other fees to independent auditors included under administrative expenses:
– company’s auditors
2014
US$’000
2013
US$’000
173
102
100
184
2
4
13.
Loss from Discontinued Operations, Net of Tax
In March 2014, 30% of voting shares in one of the subsidiary Kencana Bio-Energy Pte. Ltd. (“KB”) (the power generation
segment) were sold to Enco Ventures (Singapore) Pte. Ltd. (“Enco”) a wholly-owned subsidiary of Enco Holdings Sdn. Bhd. On
21 March 2014 the sale was completed. From this date onwards, control over the joint venture is shared between Enco and the
group (Note 20).
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
72
notes to the financial STATEMENTS
31 December 2014
13.
Loss from Discontinued Operations, Net of Tax (Cont’d)
The results for the discontinued operations for the previous reporting year and for the period from the beginning of the reporting
year to 21 March 2014, which have been included in the consolidated financial statements, were as follows:
Group
Period ended
21/03/2014
US$’000
Year ended
31/12/2013
US$’000
Revenue
Expenses
113
(468)
862
(4,005)
Loss before tax
Income tax
(355)
–
(3,143)
787
Loss after tax before disposal loss
(355)
(2,356)
–
–
–
–
Loss on disposal of subsidiary
Income tax expense
Loss after tax on disposal
Total loss on discontinued operations
–
–
(355)
(2,356)
The following table is a summary of the carrying value of assets and liabilities of Kencana Bio-Energy Pte. Ltd. that was sold on
21 March 2014:
Group
At date of disposal
21/03/2014
US$’000
Property, plant and equipment
Land use rights
Deferred tax assets
Inventories
Trade and other receivables, current
Other assets, current
Cash and cash equivalents
Trade and other payables, non-current
Other liabilities, non-current
Income tax payable
Trade and other payables, current
Non-controlling interest
Net assets disposed of
Loss on disposal
Total consideration
9,366
82
1,539
1,356
1,151
650
–
–
(74)
(4)
(1,213)
188
13,041
–
13,041
Satisfied by:
Receivable from joint venture
Loss on disposal
13,041
–
KENCANA AGRI LIMITED
At end of
2013
US$’000
8,463
80
1,440
1,093
353
767
108
(16,989)
(65)
(216)
(371)
138
ANNUAL REPORT 2014
73
notes to the financial STATEMENTS
31 December 2014
13.
Loss from Discontinued Operations, Net of Tax (Cont’d)
Group
Date of disposal
in 2014
US$’000
Net cash inflow on disposal:
Cash consideration
Cash balance disposed off
Net cash inflow
The cash flows of Kencana Bio-Energy Pte. Ltd. for the previous year and for the period from the beginning of the reporting year
to 21 March 2014, which have been included in the consolidated financial statements, were as follows:
Group
Period ended
Year ended
21/03/2014
31/12/2013
US$’000
US$’000
Operating cash flows
Investing activities
Financing activities
Total cash flows
14.
–
–
–
(41)
(67)
–
(108)
2,647
(77)
(2,565)
5
2014
US$’000
2013
US$’000
–
1,209
Dividends on Equity Shares
Final dividend paid net of income tax at S$0.0013 per share
In respect of the current year, the directors do not propose any dividend.
15.
Earnings/(Loss) per Share
The following table illustrates the numerators and denominators used to calculate basic and diluted earnings/(loss) per share of
no par value:
2014
2013
US$’000
US$’000
Numerators: earnings/(loss) attributable to equity:
Continuing operations: attributed to equity holders
Discontinued operations: loss for the year
Total basic earnings/(loss) and diluted earnings/(loss)
Denominators: weighted average number of equity shares
Basic and diluted
7,578
(355)
7,223
(8,387)
(2,356)
(10,743)
2014
’000
2013
’000
1,148,045
1,148,045
The weighted average number of equity shares refers to shares in circulation during the reporting period.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
74
notes to the financial STATEMENTS
31 December 2014
15.
Earnings/(Loss) per Share (Cont’d)
There is no dilution of earnings/(loss) per share as there are presently no dilutive shares outstanding as at the end of the
reporting year. The denominators used are the same as those detailed above for both basic and diluted earnings/(loss) per
share.
16.
Property, Plant and Equipment
Vessels
US$’000
Plant,
fixtures and
equipments
US$’000
Total
US$’000
33,392
(6,722)
12,390
–
(13,645)
10,947
(2,263)
–
–
–
62,903
(17,334)
8,681
(58)
12,269
130,797
(29,355)
21,098
(58)
–
21,887
(325)
17
(54)
25,415
(1,056)
22,041
(119)
8,684
(223)
177
–
66,461
(946)
2,781
(346)
122,482
(2,550)
25,016
(519)
–
–
(768)
2,913
(167)
(7,616)
–
635
(10,271)
4,068
(11,206)
–
35
23,670
38,498
9,273
61,747
133,223
–
–
–
–
3,775
(776)
790
–
–
–
–
–
1,675
(467)
844
–
26,611
(6,439)
6,026
(23)
32,061
(7,682)
7,660
(23)
At 31 December 2013
Foreign exchange alignment
Depreciation for the year
Disposals
Elimination on disposal of
subsidiary (Note 13)
–
–
–
–
3,789
(108)
729
(7)
–
–
–
–
2,052
(103)
1,104
–
26,175
(599)
5,406
(142)
32,016
(810)
7,239
(149)
–
(162)
–
–
(1,678)
(1,840)
At 31 December 2014
–
4,241
–
3,053
29,162
36,456
Carrying value:
At 1 January 2013
8
19,772
33,392
9,272
36,292
98,736
At 31 December 2013
35
18,098
25,415
6,632
40,286
90,466
At 31 December 2014
35
19,429
38,498
6,220
32,585
96,767
Leasehold
buildings
US$’000
Assets under
construction
US$’000
8
–
27
–
–
23,547
(3,036)
–
–
1,376
At 31 December 2013
Foreign exchange alignment
Additions
Disposals
Elimination on disposal of
subsidiary (Note 13)
Reclassifications
35
–
–
–
At 31 December 2014
Group
Cost:
At 1 January 2013
Foreign exchange alignment
Additions
Disposals
Reclassifications
Accumulated Depreciation:
At 1 January 2013
Foreign exchange alignment
Depreciation for the year
Disposals
KENCANA AGRI LIMITED
Freehold
land
US$’000
ANNUAL REPORT 2014
75
notes to the financial STATEMENTS
31 December 2014
16.
Property, Plant and Equipment (Cont’d)
Assets under construction represent partial payments for the construction of the following assets:
Group
2014
US$’000
2013
US$’000
28,247
10,251
20,230
5,185
38,498
25,415
Allocation of the depreciation expense:
Biological assets (Note 18)
Cost of sales
Administrative expenses
1,402
5,533
304
1,714
5,726
220
Total
7,239
7,660
Leasehold properties
Plant and equipment
Certain items of property, plant and equipment at a carrying value of US$90,597,000 (2013: US$74,796,000) are pledged as
security for the bank facility (see Note 27).
Certain items are under finance lease agreement (see Note 27).
Borrowing costs included in the cost of qualifying assets are as follows:
Group
Borrowing costs capitalised included in additions during the year
Accumulated borrowing costs capitalised included in the cost total
2014
US$’000
2013
US$’000
–
1,539
–
1,539
The borrowing costs capitalised represent the actual interest incurred on the bank borrowings to finance the construction of
property, plant and equipment.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
76
notes to the financial STATEMENTS
31 December 2014
17.
Investment Property
Group
2014
US$’000
2013
US$’000
At cost:
At beginning of the year
Addition at cost
2,526
–
2,526
–
At end of the year
2,526
2,526
Accumulated depreciation:
At beginning of the year
Depreciation for the year
40
26
14
26
At end of the year
66
40
Net book value
2,460
2,486
Fair value for disclosure purposes only:
Fair value at end of the year
2,938
3,161
Rental and service income from investment property
82
72
Allocation of depreciation expense:
Administrative expenses
26
26
There are no restrictions on the realisability of investment property or the remittance of income and proceeds of disposal.
The investment property is leased out under operating leases. Also see Note 32 on operating lease income commitments. The
management has not entered into contractual obligations for the maintenance or enhancement of the investment property.
The fair value of the investment property was measured in December based on the highest and best use method to reflect the
actual market state and circumstances as of the end of the reporting year. The fair value was based on a valuation made by
management, on a systematic basis at least once yearly.
There has been no change to the valuation technique during the year. Management determined that the highest and best use
of the asset is the current use and that it would provide maximum value to market participants principally through its use in
combination with other assets.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
77
notes to the financial STATEMENTS
31 December 2014
17.
Investment Property (Cont’d)
For fair value measurements categorised within Level 3 of the fair value hierarchy, a description of the valuation techniques and
the significant other observable inputs used in the fair value measurement are as follows:
Asset:
Leasehold property at 36 Armenian Street #03-03, Singapore 179934.
Gross floor area:
1,527 Square feet
Tenure of land:
99 years from 2007
Unexpired lease term:
92 years
Fair Value US$ and Fair value hierarchy – Level:
US$2,938,000 (2013: US$3,161,000). Level 3. (2013: Level 3).
Valuation technique for recurring fair value
measurements:
Market comparison method of valuation
Significant observable inputs and range (weighted
average):
Price per square foot. US$1,924 (2013: US$2,070).
Relationship of unobservable inputs to fair value:
NA.
Sensitivity on management’s estimates – 10%
variation from estimate
Impact – lower by US$293,800; higher by US$293,800.
The decrease in fair value is due to softer market conditions.
The investment property with a carrying value of US$2,460,000 is mortgaged as security for the bank facilities (see Note 27).
18.Biological Assets
Group
2014
US$’000
2013
US$’000
At beginning of the year
Additions
Capitalisation of interest cost
Capitalisation of depreciation expense (Note 16)
Foreign currency alignment
Increase in fair value less estimated point-of-sale costs (Note 7)
270,302
16,256
8,955
1,402
(7,009)
7,263
292,169
24,434
7,071
1,714
(66,748)
11,662
At end of the year (Level 3)
297,169
270,302
Movement in fair value
There was no change in the level during the year. The group’s oil palm plantations are located in Indonesia.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
78
notes to the financial STATEMENTS
31 December 2014
18.Biological Assets (Cont’d)
The group carries its oil palm plantations at fair value less estimated point-of-sale costs, which require extensive use of
accounting estimates and assumptions. Significant components of fair value measurement were determined using assumptions
and estimates including determination of future cash flows expected to be generated from the continued use of such assets,
average lives of plantations, period of being immature and mature plantations, yield per hectare, annual discount rates and
projected selling prices of CPO and CPKO. Any changes in fair values of these plantations would affect the group’s profit and
carrying value of the biological assets. It is impracticable to disclose the extent of the possible effects. It is reasonably possible,
based on existing knowledge, that outcomes within the next reporting year that are different from assumptions could require a
material adjustment to the carrying amount of the balances affected.
Mature oil palm trees produce FFB, which are used to produce CPO and CPKO. The fair value of the biological assets was
measured by KJPP Benedictus Darmapuspita dan Rekan, a firm of independent professional valuers on 9 February 2015 based
on the present value of the expected net cash flows of the underlying plantations (fair value hierarchy: Level 3). The expected net
cash flows of the oil palm plantations are determined using the forecast market price of FFB, which is largely dependent on the
historical and projected selling prices of CPO and CPKO in the market. The significant assumptions made in determining the fair
values of the oil palm plantations are as follows:
(i)
Oil palm trees have an average economic life that ranges from 23 to 25 years (2013: 23 to 25 years), with the first 3 to 4
years (2013: 3 to 4 years) as immature and the remaining years as mature;
(ii)
Yield per hectare of oil palm trees is determined by reference to guidelines issued by the Indonesian Oil Palm Research
Institute (Pusat Penelitian Kelapa Sawit), which varies with the average age of oil palm trees; the yield ranges from 6
metric tonnes per hectare to 27 metric tonnes per hectare (2013: 6 metric tonnes per hectare to 27 metric tonnes per
hectare);
(iii)
The discount rate used in 2014 is 13.74% per annum (2013: 13.63% per annum) (such discount rates represent
the asset specific rate for the group’s plantation operations which is applied in the discounted future cash flows
calculations);
(iv)
The projected selling prices of CPO over the projection period are based on historical prices in 2014 and World Bank
forecasts for prices in 2014 onwards;
(v)
The projected oil extraction rate from FFB and palm kernel are 20.15% (2013: 20.55%) and 4.37% (2013: 4.55%)
respectively; and
(vi)
No new planting or re-planting activities are assumed.
The fair value of biological assets would be affected by changes in the above assumptions used, particularly the CPO price
used.
Relationship of unobservable inputs to fair value:
Favourable or adverse change in discount rate, projected selling price of CPO and FFB extraction rate will increase or decrease
fair value.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
79
notes to the financial STATEMENTS
31 December 2014
18.Biological Assets (Cont’d)
Sensitivity on unobservable inputs:
If the projected selling prices of CPO used in the above valuation increased or decreased by 10%, assuming all other variables
are held constant, the group’s profit and the carrying value of biological assets would increase or decrease by approximately
US$52,000,000 (2013: US$45,000,000) and US$19,000,000 (2013: US$39,000,000) respectively as a result of higher or lower
gains arising from changes in fair value of the biological assets.
If the FFB extraction rate used in the above valuation increased or decreased by 1%, assuming all other variables are held
constant, the group’s profit and the carrying value of biological assets would increase or decrease by approximately
US$26,000,000 (2013: US$23,000,000) and US$26,000,000 (2013: US$23,000,000) respectively.
If the discount rate used in the above valuation increased or decreased by 1%, assuming all other variables are held constant,
the group’s profit and the carrying value of biological assets would decrease or increase by approximately US$8,000,000 (2013:
US$6,600,000) and US$9,000,000 (2013: US$7,000,000) respectively.
(a)
Analysis of biological assets:
At the end of the reporting year, biological assets comprise oil palm trees as follows:
Group
Planted area:
– mature (US$’000)
– immature (US$’000)
Planted area:
– mature (hectares)
– immature (hectares)
(b)
2014
2013
197,259
99,910
168,104
102,198
297,169
270,302
30,407
22,817
26,058
26,077
53,224
52,135
Analysis of palm oil production:
During the reporting year, the group harvested approximately 527,000 tonnes (2013: 420,000 tonnes) of FFB, which had
fair values less estimated point-of-sale costs of US$68,000,000 (2013: US$55,440,000).
(c)
At the end of the reporting year, the fair value of biological assets of the group mortgaged as security for bank
borrowings amounted to US$286,211,093 (2013: US$262,890,065).
(d)
The interest capitalised is the actual interest incurred on the bank borrowings to finance the development of oil palm
plantations. The interest rates are disclosed in Note 27.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
80
notes to the financial STATEMENTS
31 December 2014
19.
Investments in Subsidiaries
Company
2014
2013
US$’000
US$’000
Movements during the year. At cost:
At the beginning of the year
Disposals
Translation exchange adjustments
44,584
(1,195)
(774)
56,198
–
(11,614)
42,615
44,584
Total cost comprises:
Unquoted shares at cost
Quasi-equity loans receivable
Translation exchange adjustment
12,961
34,842
(5,188)
12,981
36,017
(4,414)
Total at cost
42,615
44,584
100,925
87,079
At the end of the year
Net book value of subsidiaries
The quasi-equity loans are interest-free loans to subsidiaries for which there are no significant settlement planned or likely to
occur in the foreseeable future. They are, in substance, part of the company’s net investment in the subsidiaries.
The listing of and information on the subsidiaries are given in Note 40.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
81
notes to the financial STATEMENTS
31 December 2014
20.
Investments in Joint Ventures
Group
Company
2014
2013
US$’000
US$’000
2014
US$’000
2013
US$’000
Movement during the year:
At beginning of the year
Loans and advances to joint ventures
Share of loss from equity-accounted joint ventures
Translation exchange adjustment
5,406
2,442
(2,338)
13
4,550
3,477
(2,377)
(244)
5,389
–
–
111
4,655
1,000
–
(266)
At end of the year
5,523
5,406
5,500
5,389
Carrying value:
Unquoted equity shares at cost
Loan and advances to joint ventures
Share of loss from equity-accounted joint ventures
Translation exchange adjustment
2,000
8,475
(4,803)
(149)
2,000
6,033
(2,465)
(162)
2,000
3,556
–
(56)
2,000
3,556
–
(167)
At end of the year
5,523
5,406
5,500
5,389
(a)
KENCANA AGRI LIMITED
Under an agreement between Louis Dreyfus Commodities Asia Pte Ltd (“LDCA”) joint venture partner of the group in PT
Dermaga Kencana Indonesia (“DKI”) (a wholly owned subsidiary of joint venture Kencana LDC Pte Ltd) and the group,
LDCA will purchase 100% of the volume of palm products originating from DKI. A Joint Book Account is maintained
to record the trading of DKI’s palm products. The group and LDCA will share the profits or losses arising from this
Joint Book Account equally. This agreement, in substance, would extend the operation and trading cycle of DKI, while
only the accounting function and records are prepared and kept by LDCA instead of DKI. Therefore the share of profit
or loss from the Joint Book Account is treated as part of the share of profit or loss from the equity accounted joint
venture. The net loss on Joint Book Account included in share of profit or loss from this equity accounted joint venture is
US$408,000 (2013: US$2,477,000).
ANNUAL REPORT 2014
82
notes to the financial STATEMENTS
31 December 2014
20.
Investments in Joint Ventures (Cont’d)
The listing of and information on the joint arrangements is given below:
Name of subsidiary, country of incorporation,
place of operations and principal activities
Percentage of equity
held by the group
2014
2013
%
%
Joint venture – Kencana LDC Pte Ltd #a #c (20A)
Singapore
Investment holding
50
50
Joint venture – Kencana Bio-Energy Pte Ltd #d #c (20B)
Singapore
Investment holding
70
100
Joint venture – LDC Kencana Trading Pte Ltd #c (20C)
Singapore
Dormant
50
50
The following subsidiary is held through Kencana LDC Pte Ltd:
Name of subsidiary, country of incorporation,
place of operations and principal activities
PT Dermaga Kencana Indonesia (“DKI”) #b
Indonesia
Trading and refinery company
KENCANA AGRI LIMITED
Percentage of equity
held by the group
2014
2013
%
%
50
50
ANNUAL REPORT 2014
83
notes to the financial STATEMENTS
31 December 2014
20.
Investments in Joint Ventures (Cont’d)
The following subsidiaries are held through Kencana Bio-Energy Pte Ltd:
Name of subsidiary, country of incorporation,
place of operations and principal activities
Percentage of equity
held by the group
2014
2013
%
%
PT Cahaya Permata Gemilang (“CPG”) #e
Indonesia
Wholesaler of electricity-related products
70
–
PT Belitung Energy (“BE”) #e
Indonesia
Power generation
70
–
PT Listrindo Kencana (“LK”) #e
Indonesia
Power generation
70
–
#a.
Kencana LDC Pte Ltd is an investment holding company. Its subsidiary, DKI, owns, builds and operates a refinery and a
deep water port on a land parcel located at Balikpapan, East Kalimantan, Indonesia.
#b.
Other independent auditors. Audited by firms of accountants other than member firms of RSM International of which
RSM Chio Lim LLP in Singapore is a member. The name of the firm is Deloitte Indonesia (Osman Bing Satrio & Eny) for
the Indonesian entity.
#c.
Audited by RSM Chio Lim LLP, a member of RSM International.
#d.
Kencana Bio-Energy Pte Ltd (“KB”) is an investment holding company. Its subsidiaries PT Belitung Energy (“BE”) and PT
Listrindo Kencana (“LK”) owns and operates power plants at Belitung and Bangka, Indonesia.
#e.
Audited by a member firm of RSM International of which RSM Chio Lim LLP in Singapore is a member. The name of the
member firm is RSM AAJ Associates, Jakarta.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
84
notes to the financial STATEMENTS
31 December 2014
20.
Investments in Joint Ventures (Cont’d)
20A.
Joint venture – Kencana LDC Pte Ltd
The company and another entity agreed to combine their asset management and services activities by establishing a separate
vehicle Kencana LDC Pte Ltd (“KLDC”). The parties expect the arrangement to benefit them in different ways (trading and
refinery business). KLDC’s legal form is that it causes the separate vehicle to be considered in its own right. The parties have
50% interest each. The shareholders’ agreement establishes joint control of the activities of KLDC. The joint arrangement is
carried out through a separate vehicle whose legal form confers separation between the parties and the separate vehicle and
the parties have rights to the net assets of KLDC. The parties recognise their rights to the net assets of KLDC as investments
and account for them using the equity method.
This is a joint venture that is considered material to the reporting entity. The summarised financial information of each of the
material joint venture and the amounts (and not the reporting entity’s share of those amounts) based on the financial statements
of the joint venture are as follows. These are adjusted to reflect adjustments made by the reporting entity when using the equity
method.
Group
2014
US$’000
2013
US$’000
279,725
208
7
215
244,452
354
7
361
(3,268)
12
(2,585)
(110)
(2,085)
5
(2,513)
(180)
48,881
3,367
41,844
(63,342)
(15,475)
(23,127)
(22,984)
88,313
1,785
42,376
(106,660)
(98,891)
(19,989)
(19,910)
Reconciliation:
Net assets of the joint venture
Proportion of the reporting entity’s interest in the joint venture
4,256
50%
4,040
50%
Carrying amount of the interest in the joint venture
2,128
2,020
Joint venture – Kencana LDC Pte Ltd:
Revenues
Profit for the reporting year
Other comprehensive income
Total comprehensive income
Depreciation and amortisation
Interest income
Interest expense
Income tax expense
Current assets
Cash and cash equivalents
Non-current assets
Current liabilities
Current financial liabilities (excluding trade and other payables and provisions)
Non-current liabilities
Non-current financial liabilities (excluding trade and other payables and provisions)
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
85
notes to the financial STATEMENTS
31 December 2014
20.
Investments in Joint Ventures (Cont’d)
20B.
Joint venture – Kencana Bio-Energy Pte Ltd
The group entered into an agreement with Enco Holdings Sdn Bhd, (“Enco”) a company in the business of manufacturing and
installation of boiler systems. The investment by Enco was completed on 21 March 2014. Under this arrangement Enco invested
MYR15,000,000 (equivalent to US$4,500,000) in the form of equity and convertible loan into Kencana Bio-Energy Pte Ltd (“KB”)
for a 30% stake in the KB group. The group owns 70% in the KB group (See Note 23A for details of the convertible loan
receivable from joint vernture).
The shareholders’ agreement establishes joint control of the activities of KB. The joint arrangement is carried out through a
separate vehicle whose legal form confers separation between the parties and the separate vehicle and the parties have rights
to the net assets of KB. The parties recognise their rights to the net assets of KB as investments and account for them using
the equity method.
The shareholders’ agreement provides that in the event of stipulated events of default by the company, the company grants a
put option to Enco that requires the company to purchase all the share capital of KB at a price equivalent to (a) the aggregate
initial subscription price of the share capital issued (b) plus the cumulative undistributed profits attributable to the share capital
issued to Enco or less the cumulative losses attributable to the share capital issued to Enco. In the event of stipulated events of
default by Enco the company has a call option that requires Enco to purchase all the investment shares issued to Enco at the
same price as stated in (a) and (b) above. The fair value of the put option and the call option at the end of the reporting year
was not recognised as it was not significant.
In addition, KB has granted Enco an option to subscribe for additional shares such that Enco will hold 49% of the share capital
of KB on an enlarged basis. The price of the new shares shall be based on the fair value as determined by an independent
valuer at the point of exercise of the option. The fair value of the option to subscribe additional shares at the end of the
reporting year was not recognised in the books of KB as it was not significant.
This is a joint venture that is considered material to the reporting entity. The summarised financial information of each of the
material joint venture and the amounts (and not the reporting entity’s share of those amounts) based on the financial statements
of the joint venture are as follows. These are adjusted to reflect adjustments made by the reporting entity when using the equity
method.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
86
notes to the financial STATEMENTS
31 December 2014
20.
Investments in Joint Ventures (Cont’d)
20B.
Joint venture – Kencana Bio-Energy Pte Ltd (Cont’d)
Group
2014
US$’000
2013
US$’000
Joint venture – Kencana Bio-Energy Pte Ltd:
Revenues
Loss for the reporting year
Other comprehensive (loss)/income
Total comprehensive loss
222
(3,260)
(1)
(3,261)
862
(2,356)
1
(2,355)
Depreciation and amortisation
Interest income
Interest expense
Income tax expense
585
251
2,130
175
624
10
1,675
787
4,895
325
10,352
(1,393)
–
(18,481)
(18,422)
302
2,321
108
9,983
(587)
(126)
(17,054)
(16,989)
138
Reconciliation:
Net liabilities of the joint venture
Proportion of the reporting entity’s interest in the joint venture
Carrying amount of the interest in the joint venture
(4,325)
70%
(3,027)
(5,199)
70%
(3,639)
Capital commitments for construction of plant, fixtures and equipments
3,657
–
Current assets
Cash and cash equivalents
Non-current assets
Current liabilities
Current financial liabilities (excluding trade and other payables and provisions)
Non-current liabilities
Non-current financial liabilities (excluding trade and other payables and provisions)
Non-controlling interests
20C.
Joint venture – LDC Kencana Trading Pte Ltd
This is a joint venture that is considered not material to the reporting entity. The summarised financial information of the nonmaterial joint venture and the aggregate amounts (and not the reporting entity’s share of those amounts) based on the financial
statements of the joint venture is as follows. These are adjusted to reflect adjustments made by the reporting entity when using
the equity method.
Group
2014
2013
US$’000
US$’000
Joint venture – LDC Kencana Pte Ltd:
Loss for the reporting year
Total comprehensive loss
Current assets
Cash and cash equivalents
Current liabilities
Reconciliation:
Net liabilities of the joint venture
Proportion of the reporting entity’s interest in the joint venture
Carrying amount of the interest in the joint venture
KENCANA AGRI LIMITED
(7)
(7)
(4)
(4)
3
3
(27)
5
5
(22)
(24)
50%
(12)
(17)
50%
(8)
ANNUAL REPORT 2014
87
notes to the financial STATEMENTS
31 December 2014
21.
Land Use Rights
Group
2014
US$’000
2013
US$’000
Cost:
At beginning of the year
Foreign exchange adjustment
Additions
Elimination on disposal of subsidiary (Note 13)
36,454
(1,000)
5,555
(82)
38,530
(8,933)
6,857
–
At end of the year
40,927
36,454
Accumulated amortisation:
At beginning of the year
Foreign exchange adjustment
Amortisation for the year included under administrative expenses
(1,561)
94
(1,074)
(682)
306
(1,185)
At end of the year
(2,541)
(1,561)
Carrying value:
At beginning of the year
34,893
37,848
At end of the year
38,386
34,893
Balance to be amortised:
Not later than one year
Later than one year not later than five years
Later than five years
1,161
4,644
32,581
846
3,384
30,663
38,386
34,893
The land rights with a carrying value of US$32,673,000 (2013: US$26,470,000) have been pledged as security for the bank
facilities (see Note 27).
At the end of the reporting year, the group’s land rights covering a total land area of 118,537 hectares, represent Business
Usage Rights (“Hak Guna Usaha” or “HGU”) that have been applied for. Out of these land rights, the certificates for 112,126
hectares were obtained before 31 December 2014 while the land rights certificates covering the remaining area of 6,411
hectares are still in the progress of preparation as at the date of this report. The group has been given a permit to arrange for
land clearing for oil palm plantation purposes. The land rights will be amortised once the titles are issued to the group.
The legal terms of the group’s existing certified land rights expire in various years. The details are as follows:Land rights
Expire in years
23,463 hectares
88,663 hectares
6,411 hectares
2028 – 2037
2037 – 2049
Certificates have yet to be received as of the date of this report
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
88
notes to the financial STATEMENTS
31 December 2014
22.Inventories
Group
Raw materials, consumables and supplies
Finished goods and goods for resale (CPO and CPKO)
Increase in inventories of finished goods
Raw materials and consumables used included in cost of sales
2014
US$’000
2013
US$’000
9,189
2,540
10,562
1,525
11,729
12,087
(1,015)
31,802
(325)
22,677
Inventories with a carrying value of US$9,560,000 (2013: US$9,352,000) are pledged as security for the bank facilities (see Note 27).
23.
Trade and Other Receivables
Group
Non-current
Other receivables:
Advances under Plasma Programme (Note 33)
Convertible loan receivables from joint venture (Note 23A)
Net other receivables – Subtotal
Total other receivables, non-current
Current
Trade receivables:
Third parties
Less allowance for impairment
Joint venture (Note 3)
Related parties (Note 3)
Net trade receivables – Subtotal
Other receivables:
Subsidiaries (Note 3)
Other related parties (Note 3)
Staff advances #a
Prepaid taxes
VAT receivable
Advances under Plasma Programme (Note 33)
Other receivables
Net other receivables – Subtotal
Total trade and other receivables, current
Total trade and other receivables
#a KENCANA AGRI LIMITED
Company
2014
2013
US$’000
US$’000
2014
US$’000
2013
US$’000
3,864
12,412
16,276
16,276
4,811
–
4,811
4,811
–
–
–
–
–
–
–
–
1,391
(900)
215
129
835
16,794
(900)
2,909
1,320
20,123
–
–
–
–
–
–
–
–
–
–
–
1
231
3,028
4,230
7,583
427
15,500
16,335
32,611
–
1
248
2,766
4,253
4,990
507
12,765
32,888
37,699
24,908
–
–
–
–
–
–
24,908
24,908
24,908
27,160
–
–
–
–
–
–
27,160
27,160
27,160
Staff advances are unsecured, without interest and are on fixed equal monthly repayment terms.
ANNUAL REPORT 2014
89
notes to the financial STATEMENTS
31 December 2014
23.
Trade and Other Receivables (Cont’d)
Group
2014
US$’000
2013
US$’000
Movements in above allowance:
Balance at beginning of the year
Charge to profit or loss included in other losses
(900)
–
–
(900)
Balance at end of the year
(900)
(900)
Certain trade receivables with a carrying value of US$654,000 (2013: US$3,362,000) have been pledged as security for the
bank facilities (see Note 27).
23A.
Convertible Loan Receivables from Joint Venture
Group
2014
US$’000
2013
US$’000
Movement during the year
Balance at the beginning of the year
Addition at cost
Interest income
Amount off-set against convertible loan receivable from joint venture (Note 20)
Repayment
–
13,041
1,744
(2,034)
(339)
–
–
–
–
–
Balance at the end of the year
12,412
–
The convertible loan receivables are convertible at the holder’s option into ordinary shares of the investee company (see
Note 20B) at any time before the 21 March 2018. Notwithstanding this the joint venture shall have right to repay such part
of the loans as the board of directors may from time to time approve. For an investment in a convertible debt receivable that
is convertible before maturity that is classified as available-for-sale, the amount paid for the debt receivable is split between
the debt instrument without the conversion option and the equity conversion option. Changes in the fair value of the equity
conversion option are recognised in profit or loss unless the option is part of a cash flow hedging relationship. The fair values of
the debt receivable component and the conversion option component were measured at date of issue of the loan. The interest
income recognised in profit or loss is calculated using the effective interest rate method at 10.75 % to the debt receivable
component for the period since the debt receivable was issued. The fair value of the conversion option at the end of the
reporting year was not recognised as it was not significant.
The loan is carried at amortised cost using the effective interest method over 4 years. The carrying amount is a reasonable
approximation of fair value (Level 3).
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
90
notes to the financial STATEMENTS
31 December 2014
24.
Other Assets
Group
2014
US$’000
2013
US$’000
Other assets, non-current
Prepaid rent to a related party (Note 31)
844
942
Total other assets, non-current
844
942
Prepaid rent to a related party (Note 31)
Advance payments
Other prepayments
Total other assets, current
48
7,213
4,121
11,382
18
7,459
6,452
13,929
Total other assets
12,226
14,871
Other assets, current
25.
Cash and Cash Equivalents
Group
Not restricted in use
2014
US$’000
2013
US$’000
14,124
14,208
The interest earning balances are not significant.
25A.
Cash and Cash Equivalents in Consolidated Statement of Cash Flows:
Company
2014
2013
US$’000
US$’000
952
1,501
Group
2014
US$’000
2013
US$’000
Amount as shown above
Bank overdrafts (Note 27)
14,124
(389)
14,208
–
Cash and cash equivalents for consolidated statement of cash flows purposes
at end of the year
13,735
14,208
25B.
Non-Cash Transactions:
There were acquisitions of certain assets under property, plant and equipment with a total cost of US$670,000 (2013:
US$1,933,000) acquired by means of finance leases.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
91
notes to the financial STATEMENTS
31 December 2014
26.
Share Capital
Number of
shares issued
’000
Share capital
US$’000
Ordinary shares of no par value:
Balance at beginning of the year 1 January 2013
1,148,045
93,860
Balance at end of the years 31 December 2013 and 31 December 2014
1,148,045
93,860
The ordinary shares of no par value which are fully paid carry no right to fixed income. The company is not subject to any
externally imposed capital requirements except as noted below.
Capital Management:
In order to maintain its listing on the Singapore Stock Exchange it has to have share capital with a free float of at least 10% of
the shares. The company met the capital requirement on its initial listing and the rules limiting treasury share purchases mean it
will automatically continue to satisfy that requirement, as it did throughout the reporting year. Management receives a report from
the registrars frequently on substantial share interests showing the non-free float to ensure continuing compliance with the 10%
limit throughout the reporting year.
The objectives when managing capital are: to safeguard the reporting entity’s ability to continue as a going concern, so that it
can continue to provide returns for owners and benefits for other stakeholders, and to provide an adequate return to owners by
pricing the sales commensurately with the level of risk. The management sets the amount of capital to meet its requirements
and the risk taken. There were no changes in the approach to capital management during the reporting year. The management
manages the capital structure and makes adjustments to it where necessary or possible in the light of changes in conditions and
the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the management may adjust
the amount of dividends paid to owners, return capital to owners, issue new shares, or sell assets to reduce debt.
The management does not set a target level of gearing but uses capital opportunistically to support its business and to add
value for shareholders. The key discipline adopted is to widen the margin between the return on capital employed and the cost
of that capital. Adjusted capital comprises all components of equity (that is, share capital and reserves).
The management monitors the capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt/
adjusted capital (as shown below). Net debt is calculated as total borrowings less cash and cash equivalents.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
92
notes to the financial STATEMENTS
31 December 2014
26.
Share Capital (Cont’d)
Group
2014
US$’000
2013
US$’000
Net debt:
All current and non-current borrowings including finance leases
Less: cash and cash equivalents
Net debt
241,136
(14,124)
227,012
209,587
(14,208)
195,379
Adjusted capital:
Total equity
172,735
165,544
131%
118%
Debt-to-capital ratio
The increase in the debt-to-adjusted capital ratio for the reporting year resulted mainly from the increased borrowings to support
the group’s expansion.
All reserves classified in the statements of financial position as retained earnings represent past accumulated earnings and are
distributable. The other reserves are not available for cash dividends unless realised.
27.
Other Financial Liabilities
Group
Non-current:
Floating interest rates:
Bank loans (secured) (Note 27B)
Investment loans (secured) (Note 27B)
Term loans (secured) (Note 27B)
Fixed interest rates:
Finance leases (Note 27C)
Non-current, total
Current:
Floating interest rates:
Bank overdrafts (secured) (Note 27A)
Bank loans (secured) (Notes 27A)
Bank loans (unsecured) (Note 27A)
Investment loans (secured) (Note 27B)
Term loans (secured) (Note 27B)
Fixed interest rates:
Finance leases (Note 27C)
Derivative financial instruments (Note 30)
Current, total
Total
KENCANA AGRI LIMITED
2014
US$’000
2013
US$’000
3,439
162,825
32,604
198,868
3,820
154,481
1,780
160,081
598
199,466
1,309
161,390
389
20,402
660
13,528
3,739
38,718
–
11,827
18,025
14,911
943
45,706
1,235
1,717
41,670
241,136
1,795
696
48,197
209,587
ANNUAL REPORT 2014
93
notes to the financial STATEMENTS
31 December 2014
27.
Other Financial Liabilities (Cont’d)
27A.Bank Overdrafts And Bank Loans – Current
The range of floating interest rates paid was as follows:
Group
2014
Bank overdrafts – secured
Indonesian Rupiah
Bank loans – secured
Singapore dollar
United States dollar
Indonesian Rupiah
Investment loans – secured
United States dollar
Indonesian Rupiah
Term loans – secured
United States dollar
Bank loans – unsecured
United States dollar
2013
13.50%
–
2.03% – 2.23%
5.50% – 6.75%
11.00% – 11.75%
2.03% – 2.13%
5.70% – 6.75%
10.50% – 11.50%
6.25% – 6.50%
11.00% – 11.50%
6.25%
10.50% – 11.25%
5.50% – 6.50%
5.50% – 6.50%
2.00% – 3.19%
3.00% – 3.19%
The bank overdrafts and other secured banking facilities are covered by way of negative pledges on certain cash and cash
equivalents, inventories, trade receivables, land use rights, properties, vessels and plant and equipment of the group.
27B.Bank Loans – Non-Current
The range of floating interest rates paid was as follows:
Group
2014
Bank loans – secured
Singapore dollar
Investment loans – secured
United States dollar
Indonesian Rupiah
Term loans – secured
United States dollar
2013
2.03% – 2.23%
2.03% – 2.23%
6.25% – 6.50%
11.00% – 11.50%
6.25%
11.00% – 11.25%
5.50% – 6.50%
5.50% – 6.50%
The floating rate loans are with interest rates that are re-set regularly at one and three month intervals.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
94
notes to the financial STATEMENTS
31 December 2014
27.
Other Financial Liabilities (Cont’d)
27B.Bank Loans – Non-Current (Cont’d)
The scheduled maturities of the group’s borrowings are as follows:
Total
U.S. Dollar
Equivalent
Original loan currency
Rp’000,000
SG$’000
US$’000
US$’000
Long-term borrowings:
As at 31 December 2014
2 – 5 years
Above 5 years
Total
1,028,946
766,456
1,795,402
1,598
2,808
4,406
38,854
12,250
51,104
122,814
76,054
198,868
As at 31 December 2013
2 – 5 years
Above 5 years
Total
667,818
899,581
1,567,399
1,998
2,838
4,836
27,680
–
27,680
84,046
76,035
160,081
The long-term banking facilities are covered by way of negative pledges on certain inventories, trade receivables, land use rights,
properties, vessels and plant and equipment of the group.
The purpose of the above investment loans is to finance the development of plantations and construction of CPO and CPKO
mills, inclusive of all the related facilities such as building construction, vehicles and heavy equipment. The term loans and bank
loans are to finance the development of power plants.
The loan agreements include covenants that require the maintenance of certain financial ratios. Any non-compliance with these
covenants will result in these loans becoming repayable immediately upon service of a notice by default by the lenders. As at
reporting year end, there were certain breaches in loan agreement covenants for loans amounting to US$6,445,000 and the
lenders have not made a demand for repayment and agreed to waive the breaches prior to the reporting year end.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
95
notes to the financial STATEMENTS
31 December 2014
27.
Other Financial Liabilities (Cont’d)
27C.
Finance Leases
Group
2014
Minimum
payments
US$’000
Finance
charges
US$’000
Present
value
US$’000
Minimum lease payments payable:
Due within one year
Due within 2 to 5 years
1,350
643
(115)
(45)
1,235
598
Total
1,993
(160)
1,833
Net book value of plant and equipment under finance leases
3,606
Minimum
payments
US$’000
Finance
charges
US$’000
Present
value
US$’000
Minimum lease payments payable:
Due within one year
Due within 2 to 5 years
2,001
1,390
(206)
(81)
1,795
1,309
Total
3,391
(287)
3,104
2013
Net book value of plant and equipment under finance leases
5,623
There are leased assets for certain plant and equipment under finance leases. The average lease term is 3 years. The fixed rate
of interest for finance leases is about 7.5% to 15.0% (2013: 7.3% to 15.2%) per year. All leases are on a fixed repayment basis
and no arrangements have been entered into for contingent rental payments. The obligations under finance leases are secured
by the lessor’s charge over the leased assets.
The fair value (Level 2) is a reasonable approximation of the carrying amount. The fair value of the finance leases was estimated
by discounting the future cash flows payable under the terms of the finance leases using the year-end interest rates ranging
between 7.5% and 15.0%.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
96
notes to the financial STATEMENTS
31 December 2014
28.
Trade and Other Payables
Group
29.
Company
2014
2013
US$’000
US$’000
2014
US$’000
2013
US$’000
Non-current
Other payables:
Advances from customer
9,484
22,585
–
–
Total other payables, non-current
9,484
22,585
–
–
Current
Trade payables:
Outside parties and accrued liabilities
Joint venture (Note 3)
23,151
–
29,007
–
192
1,970
108
–
Subtotal
23,151
29,007
2,162
108
Other payables:
Advances from customer
Other payables for property, plant and equipment
Other payables
29,072
1,436
318
21,955
700
3,476
–
–
–
–
–
–
Subtotal
30,826
26,131
–
–
Total trade and other payables, current
53,977
55,138
2,162
–
Total trade and other payables
63,461
77,723
2,162
108
Other Liabilities, Non-Current
Group
Employee pension benefits
KENCANA AGRI LIMITED
2014
US$’000
2013
US$’000
4,216
3,429
ANNUAL REPORT 2014
97
notes to the financial STATEMENTS
31 December 2014
29.
Other Liabilities, Non-Current (Cont’d)
Estimated Liability for Employee Pension Benefits
Besides the benefits provided under the defined contribution retirement plans, the group has recorded additional provisions for
employee service entitlements in order to meet the minimum benefits required to be paid to the qualified employees, as required
under existing manpower regulations in Indonesia. The additional provisions are measured based on actuarial computations
prepared by an independent firm of actuaries, PT Quattro Asia Consulting, using the “Projected Unit Credit” method which
is covered in their report dated 26 January 2015. As at 31 December 2014, the balance of the related actuarial liability for
employee pension benefits amounted to US$4,216,000. They are as follows:
Group
2014
US$’000
2013
US$’000
4,326
(110)
4,074
(645)
4,216
3,429
2014
US$’000
2013
US$’000
Benefits obligation at beginning of the year
Current service costs
Interest costs on benefits obligation
Past services costs – vested
Actuarial loss
Elimination on disposal of subsidiary (Note 13)
Foreign currency alignment
3,429
650
313
(124)
119
(74)
(97)
2,323
739
200
(108)
920
–
(645)
Benefits obligation at end of the year
4,216
3,429
Present value of employee benefits obligation in addition to the defined contribution scheme
Foreign currency alignment
Changes in the present value of the defined benefits obligation are as follows:
The following table summarises the component of net employee benefits expense recognised in the profit or loss and other
comprehensive income:
2014
US$’000
2013
US$’000
Current service costs
Interest costs on benefits obligation
Past services costs – vested
650
313
(124)
739
200
(108)
Components of employee benefits expense recognised in profit and loss (Note 10)
Actuarial loss
839
119
831
920
Component of employee benefits expense recognised in other comprehensive loss
119
920
958
1,751
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
98
notes to the financial STATEMENTS
31 December 2014
29.
Other Liabilities, Non-Current (Cont’d)
Estimated Liability for Employee Pension Benefits (Cont’d)
The principal assumptions used in determining post-employment obligations for the plan are as follows:
Annual discount rate
:
8.6% in 2014 and 9.1% in 2013
Future annual salary increase
:
8% to 10% in 2014 and 10% in 2013
Annual employee turnover rate
:
7% in 2014 and 5% to 10% in 2013 for employees under 40 years old and decreasing
linearly until 0% at the age of 55 years
Disability rate
:
10% to 20% per year in 2014 and in 2013
Retirement age
:
55 years of age
Mortality rate
:
Indonesian mortality table 3
The assumptions relating to longevity used to compute the defined benefit obligation liabilities are based on best estimate of the
mortality of plan members both during and after employment based on the published mortality tables commonly used by the
actuarial profession in each territory concerned.
For the above significant actuarial assumptions, a sensitivity analysis on the defined benefit obligation has been determined
based on reasonably possible changes of the assumption occurring at the end of the reporting year, while holding all other
assumptions constant:
Group
If the discount rate is 1% higher/(lower)
Decrease
US$’000
Increase
US$’000
248
284
For the above sensitivity analysis, the present value of the defined benefit obligation has been determined using the projected
unit credit method at the end of the reporting year. Such sensitivity analysis might not be representative of the actual change in
the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
99
notes to the financial STATEMENTS
31 December 2014
30.
Derivative Financial Instruments
Group
2014
US$’000
Liabilities – Derivatives with negative fair values:
Forward currency exchange contracts (Note 30A)
Cross currency swap contracts (Note 30A)
Commodity derivative contracts (Note 30B)
Interest rate swap contracts (Note 30C)
Total derivatives
2013
US$’000
–
1,547
570
–
–
170
126
–
1,717
696
Movements during the year were as follows:
2014
US$’000
2013
US$’000
Fair value at the beginning of the year
Gains on disposal included in other gains
Decrease in fair value included in other losses
Gains/(losses) recognised in cost of sales
(696)
618
(1,717)
78
–
–
(570)
(126)
Fair value at end of the year
(1,717)
(696)
30A. Forward Currency Exchange Contracts
These include the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of
notional value outstanding is not necessarily a measure or indication of market risk, as the exposure of certain contracts may be
offset by that of other contracts.
Reference
currency
Forward currency contracts
Cross currency swaps
USD
USD
Principal
2014
2013
US$’000
US$’000
Fair Value
2014
2013
US$’000
US$’000
–
21,762
10,000
–
–
1,547
570
–
21,762
10,000
1,547
570
Currency derivatives are utilised to hedge significant future transactions and cash flows. The entity is party to a variety of
foreign currency forward contracts in the management of its exchange rate exposures. The instruments purchased are primarily
denominated in the currencies of the entity’s principal markets. As a matter of principle, the entity does not enter into derivative
contracts for speculative purposes.
The fair value of the forward currency contracts is based on the difference between the contractual exchange rate and the
market rate at the end of the reporting year. The fair value of the currency derivatives is estimated based on market values of
equivalent instruments at the statements of financial position date (Level 2).
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
100
notes to the financial STATEMENTS
31 December 2014
30.
Derivative Financial Instruments (Cont’d)
30A. Forward Currency Exchange Contracts (Cont’d)
There are contractual agreements or currency swaps with other parties to exchange streams of payments over time based on
specified notional amounts. The entity pays a specified amount in one currency and receives a specified amount in another
currency. The currency swaps for which gross cash flows are exchanged are shown gross. The increases or decreases in
the fair values of the foreign currency denominated financial assets and liabilities are partially offset by gains and losses on the
economic hedging instruments.
The applied valuation techniques for the currency swaps include forward pricing and swap models, using present value
calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and
forward rates and interest rate curves. For these financial instruments, inputs into models are market observable (Level 2).
30B.
Commodity Derivative Contracts
Forward commodity contracts and commodity swap contracts are entered into to manage the fluctuations in prices of CPO.
These commodity derivative contracts are not designated as hedges for accounting purposes. The contractual or underlying
principal amounts of the commodity derivative contracts with fixed pricing terms that were outstanding at the end of the
reporting year were as follows:
2014
US$’000
Notional value for commodity swap contracts
2013
US$’000
–
2,164
–
2,164
Year end fair values:
– Negative fair value
–
(126)
Net fair value
–
(126)
Maturity period – For 2013
January to March 2014
The fair value of these commodity derivative contracts is based on the difference between the contractual price and the market
price at the end of the reporting year. The fair value of the commodity derivative contracts is estimated based on market values
of equivalent instruments at the statement of financial position date (Level 2).
Market price mentioned in the above paragraph is the futures price for CPO as published by Bursa Malaysia Derivatives Berhad.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
101
notes to the financial STATEMENTS
31 December 2014
30.
Derivative Financial Instruments (Cont’d)
30C. Interest Rate Swap Contract
Interest on the interest rate swaps is calculated on the notional amount of US$34,430,000 (2013: US$Nil). They are designed
to convert floating rate borrowings to fixed rate exposure for the next five years at 6.50% per year (2013: Nil). At the end of the
reporting year, the floating interest rate was 6.50% (2013: Nil). Information on the maturities of the loans is provided in Note 27.
The interest rate swaps are not traded in an active market. As a result, their fair values are based on valuation techniques
currently consistent with generally accepted valuation methodologies for pricing financial instruments, and incorporate all factors
and assumptions that knowledgeable, willing market participants would consider in setting the price (Level 2). The valuation
technique uses market observable inputs.
The fair value (Level 2) of interest rate swaps is measured at the present value of future cash flows estimated and discounted
based on the applicable yield curves derived from quoted interest rates.
31.
Operating Lease Payment Commitments
At the end of the reporting year the total of future minimum lease payment commitments under non-cancellable operating leases
are as follows:
Group
Not later than one year
Later than one year and not later than five years
Later than five years
Rental expenses for the year
2014
US$’000
2013
US$’000
48
193
651
49
197
714
51
57
Operating lease payments represent rentals payable for certain office and warehousing premises. The lease agreement covering
a period of 25 years from 1 July 2008 to 30 June 2033 was entered with a related party. The lease rental terms are negotiated
annually and rentals are subject to an escalation clause that is limited to a certain percentage. As at the end of the reporting
year, the subsidiary had prepaid an amount of US$892,000 (2013: US$960,000) to the related party.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
102
notes to the financial STATEMENTS
31 December 2014
32.
Operating Lease Income Commitments
At the end of the reporting year the total of future minimum lease receivables committed under non-cancellable operating leases
are as follows:
Group
2014
US$’000
2013
US$’000
Not later than one year
Later than one year and not later than five years
14
–
87
14
Rental income for the year
82
72
Operating lease income commitments are for the investment property. The lease rental income terms are negotiated for an
average term of two years and rentals are subject to an escalation clause but the amount of the rent increase is not to exceed a
certain percentage.
33.
Contingent Liabilities
Corporate Guarantees Given by the Group under the Plasma Programme
Certain subsidiaries of the group have implemented the Plasma Programme using plantation business cooperative scheme
(Kredit Koperasi Primer Anggota or “KKPA”) cooperation in local community palm oil plantation scheme (Kebun Kelapa Sawit
Rakyat or “KKSR”) and independent plasma scheme (Plasma Mandiri). The development of plantations is financed by credit
investment facilities granted by designated banks to the villagers through local cooperatives as the representatives of the
villagers. The loan facilities are secured by the land certificates held by the villagers and corporate guarantees from the group.
The credit facility amounts and the outstanding balances of the bank loans granted by the banks to the villagers as at the end of
the reporting year are as follows:
Group
Facility amounts
Outstanding balances
KENCANA AGRI LIMITED
2014
US$’000
2013
US$’000
28,869
16,041
27,792
14,975
ANNUAL REPORT 2014
103
notes to the financial STATEMENTS
31 December 2014
33.
Contingent Liabilities (Cont’d)
Corporate Guarantees Given by the Group under the Plasma Programme (Cont’d)
Upon maturity of the oil palm, the land will be maintained and managed by the villagers or in the future by the group. The
harvested FFB will then be sold to the group. The villagers will repay the loan facilities from a portion of the FFB sale price. In
addition to the scheme, the group provided temporary funding to the local cooperatives for working capital purposes. The cost
of development of plantations and temporary funding provided by the group to local cooperatives as at the end of the reporting
year are as follows:
Group
Cost of development of plantations
Presented as other receivables (Note 23)
Advances under Plasma Programme, Current
Advances under Plasma Programme, Non-current
Fair value adjustments
Foreign currency alignment
2014
US$’000
2013
US$’000
11,447
9,801
7,583
5,267
(1,439)
36
4,990
5,963
(1,395)
243
11,447
9,801
Fair value of non-current advances under Plasma Programme was measured by management in December 2014, based on the
present value of the expected net cash flows of the underlying plantations (fair value hierarchy: Level 3). as more fully disclosed
in Note 18. There was no change in the level during the year.
Relationship of unobservable inputs to fair value:
Favourable or adverse change in discount rate will increase or decrease fair value.
Sensitivity on unobservable inputs:
If the discount rate used in the above valuation increased or decreased by 1%, assuming all other variables are held constant,
the group’s pre-tax profit and the carrying value of advances under Plasma Programme would decrease or increase by
approximately US$151,000 (2013: US$119,000) and US$158,000 (2013: US$127,000) respectively.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
104
notes to the financial STATEMENTS
31 December 2014
34.
Capital Commitments
Estimated amounts committed at the end of the reporting year for future capital expenditure but not recognised in the financial
statements are as follows:
Group
Commitments for land clearing and development
Commitments for construction of leasehold buildings
Commitments for construction of plant, fixtures and equipments
2014
US$’000
2013
US$’000
195
154
902
360
487
–
35.
Financial Instruments: Information on Financial Risks
35A.
Classification of Financial Assets and Liabilities
The following table summarises the carrying amount of financial assets and liabilities recorded at the end of the reporting year by
FRS 39 categories:
Group
Company
2014
2013
US$’000
US$’000
2014
US$’000
2013
US$’000
Financial assets:
Cash and cash equivalents
Loans and receivables
Financial assets at fair value through profit or loss
14,124
18,136
11,447
14,208
25,133
9,801
952
24,908
–
1,501
27,160
–
At end of the year
43,707
49,142
25,860
28,661
Financial liabilities:
Derivative financial instruments at fair value
Other financial liabilities measured at amortised cost
Finance leases measured at amortised cost
Trade and other payables measured at amortised cost
1,717
237,586
1,833
24,905
696
205,787
3,104
33,183
–
–
–
2,162
–
–
–
108
At end of the year
266,041
242,770
2,162
108
Further quantitative disclosures are included throughout these financial statements. Certain disclosures for the company have
not been made as the financial assets and financial liabilities are not significant.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
105
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35B.
Financial Risk Management
The main purpose for holding or issuing financial instruments is to raise and manage the finances for the entity’s operating,
investing and financing activities. There are exposures to the financial risks on the financial instruments such as credit risk,
liquidity risk and market risk comprising interest rate, currency risk and price risk exposures. Management has certain practices
for the management of financial risks. However these are not formally documented in written form. The guidelines include the
following:
Minimise interest rate, currency, credit and market risk for all kinds of transactions.
Maximise the use of “natural hedge”: favouring as much as possible the natural off-setting of sales and costs and
payables and receivables denominated in the same currency and therefore put in place hedging strategies only for the
excess balance. The same strategy is pursued with regard to interest rate risk.
3.
All financial risk management activities are carried out and monitored by senior management staff.
4.
All financial risk management activities are carried out following good market practices.
5.When appropriate, enter into derivatives or any other similar instruments solely for hedging purposes.
1.
2.
The entitly is exposed to currency and interest rate risks. From time to time, there may be borrowings and foreign exchange
arrangement or interest rate swap contracts or similar instruments entered into as derivatives against changes in interest rates,
cash flows or the fair value of the financial assets and liabilities.
There have been no changes to the exposures to risk; the objectives, policies and processes for managing the risk and the
methods used to measure the risk.
The finance director who monitors the procedures reports to the board.
35C.
Fair Value of Financial Instruments
The analyses of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to
3 are disclosed in the relevant notes to the financial statements. These include both the significant financial instruments stated
at amortised cost and at fair value in the statement of financial position. The carrying values of current financial instruments
approximate their fair values due to the short-term maturity of these instruments and the disclosures of fair value are not made
when the carrying amount of current financial instruments is a reasonable approximation of the fair value.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
106
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35D.
Credit Risk on Financial Assets
Financial assets that are potentially subject to concentrations of credit risk and failures by counterparties to discharge their
obligations in full or in a timely manner consist principally of cash balances with banks, cash equivalents and receivables. The
maximum exposure to credit risk is: the total of the fair value of the financial assets; the maximum amount the entity could have
to pay if the guarantee is called on; and the full amount of any loan payable commitments at the end of the reporting year. Credit
risk on cash balances with banks and any derivative financial instruments is limited because the counter-parties are entities with
acceptable credit ratings. For credit risk on receivables an ongoing credit evaluation is performed on the financial condition of
the debtors and a loss from impairment is recognised in profit or loss. The exposure to credit risk with customers is controlled
by setting limits on the exposure to individual customers and these are disseminated to the relevant persons concerned and
compliance is monitored by management.
Note 25 discloses the maturity of the cash and cash equivalents balances.
As part of the process of setting customer credit limits, different credit terms are used. The average credit period generally
granted to trade receivable customers is about 30 days (2013: 30 days). But some customers take a longer period to settle the
amounts.
(a)
Ageing analysis of the age of trade receivable amounts that are past due as at the end of reporting year but not
impaired:
Group
Trade receivables:
1 to 60 days
61 to 90 days
91 to 180 days
(b)
2014
US$’000
2013
US$’000
835
–
–
2,667
485
449
835
3,601
Ageing analysis as at the end of reporting year of trade receivable amounts that are impaired:
Group
2014
US$’000
Trade receivables:
Over 180 days
900
2013
US$’000
900
Other receivables are normally with no fixed terms and therefore there is no maturity.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
107
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35D.
Credit Risk on Financial Assets (Cont’d)
Concentration of trade receivable customers as at the end of the reporting year:
Group
Top 1 customer
Top 2 customers
2014
US$’000
2013
US$’000
215
344
10,171
13,081
35E.
Liquidity Risk – Financial Liability Maturity Analysis
The following table analyses the non-derivative financial liabilities by remaining contractual maturity (contractual and
undiscounted cash flows):
Less than
1 year
US$’000
1–3
years
US$’000
3–5
years
US$’000
Over
5 years
US$’000
Total
US$’000
Non-derivative financial liabilities:
2014
Gross borrowing commitments
Gross finance lease commitments
Trade and other payables
39,440
1,350
24,905
57,670
643
–
68,035
–
–
77,861
–
–
243,006
1,993
24,905
Total
65,695
58,313
68,035
77,861
269,904
2013
Gross borrowing commitments
Gross finance lease commitments
Trade and other payables
46,162
2,001
33,183
35,272
1,390
–
50,885
–
–
79,018
–
–
211,337
3,391
33,183
Total
81,346
36,662
50,885
79,018
247,911
Group
The undiscounted amounts on the bank borrowings with fixed and floating interest rates are determined by reference to the
conditions existing at the reporting date.
The above amounts disclosed in the maturity analysis are the contractual undiscounted cash flows and such undiscounted cash
flows differ from the amount included in the statements of financial position. When the counterparty has a choice of when an
amount is paid, the liability is included on the basis of the earliest date on which it can be required to pay. The undiscounted
amounts on the bank borrowings with fixed and floating interest rates are determined by reference to the conditions existing at
the reporting date.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
108
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35E.
Liquidity Risk – Financial Liability Maturity Analysis (Cont’d)
The following table analyses the derivative financial liabilities by remaining contractual maturity (contractual and undiscounted
cash flows):
Less than
1 year
US$’000
1–3
years
US$’000
3–5
years
US$’000
Over
5 years
US$’000
Total
US$’000
Derivative financial liabilities:
2014
Gross settled:
Cross currency swap
Interest rate swap
5,545
228
10,968
587
5,249
1,423
–
–
21,762
2,238
Total
5,773
11,555
6,672
–
24,000
2013
Gross settled:
Commodity derivative contracts
Forward currency exchange contracts
2,164
10,000
–
–
–
–
–
–
2,164
10,000
Total
12,164
–
–
–
12,164
Group
Financial guarantee contracts – For financial guarantee contracts, the maximum earliest period in which the guarantee amount
can be claimed by other party is used. At the end of the reporting year no claims on the financial guarantees are expected to be
payable. The following table shows the maturity analysis of the contingent liabilities from financial guarantees:
Less than
1 year
US$’000
1–5
years
US$’000
Over
5 years
US$’000
2014
Financial guarantees in respect of the Plasma Programme
1,360
9,007
5,674
2013
Financial guarantees in respect of the Plasma Programme
909
7,379
6,687
Group
Total
US$’000
16,041
14,975
The liquidity risk refers to the difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash
or another financial asset. It is expected that all the liabilities will be settled at their contractual maturity. The average credit
period taken to settle trade payables is about 50 days (2013: 50 days). The other payables are with short-term durations. The
classification of the financial assets is shown in the statements of financial position as they may be available to meet liquidity
needs and no further analysis is deemed necessary.
The fair value of the financial guarantees is not significant.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
109
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35E.
Liquidity Risk – Financial Liability Maturity Analysis (Cont’d)
Bank facilities:
Group
Undrawn borrowing facilities
2014
US$’000
2013
US$’000
199,418
221,295
The undrawn borrowing facilities are available for operating activities and to settle other commitments. Borrowing facilities are
maintained to ensure funds are available for the operations. A schedule showing the maturity of financial liabilities and unused
bank facilities is provided regularly to management to assist in monitoring the liquidity risk.
35F.
Interest Rate Risk
The interest rate risk exposure is from changes in fixed rate and floating interest rates and it mainly concerns financial liabilities
which are both fixed rate and floating rate. The interest from financial assets including cash balances is not significant. The
following table analyses the breakdown of the significant financial instruments (excluding derivatives) by type of interest rate:
Group
Company
2014
2013
US$’000
US$’000
2014
US$’000
2013
US$’000
Financial liabilities with interest:
Floating rate
Fixed rate
237,586
1,833
205,787
3,104
–
–
–
–
Total at end of year
239,419
208,891
–
–
Financial assets with interest:
Floating rate
14,124
14,208
952
1,501
Fixed rate
12,412
–
–
–
Total at end of year
26,536
14,208
952
1,501
The floating rate debt instruments are with interest rates that are re-set at regular intervals. The interest rates are disclosed in
the respective notes.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
110
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35F.
Interest Rate Risk (Cont’d)
Sensitivity analysis:
Group
2014
US$’000
2013
US$’000
Company
2014
2013
US$’000
US$’000
Financial assets:
A hypothetical variation in interest rates by 100 basis
points with all other variables held constant, would
have an increase in pre-tax profit for the year by
265
142
10
15
Financial liabilities:
A hypothetical variation in interest rates by 100 basis
points with all other variables held constant, would
have an decrease in pre-tax profit for the year by
2,376
2,058
–
–
The analysis has been performed for fixed interest rate and floating interest rate over a year for financial instruments. The impact
of a change in interest rates on fixed interest rate financial instruments has been assessed in terms of changing of their fair
value. The impact of a change in interest rates on floating interest rate financial instruments has been assessed in terms of
changing of their cash flows and therefore in terms of the impact on net expenses. The hypothetical changes in basis points are
not based on observable market data (unobservable inputs).
There is an adverse change in interest rates during the current reporting year mainly due to the adverse changes in variable rate
borrowing instruments.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
111
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35G.
Foreign Currency Risks
Analysis of amounts denominated in non-functional currency:
Group
US dollars
US$’000
Total
US$’000
2014
Financial assets:
Cash and cash equivalents
Trade and other receivables
3,609
212
3,609
212
Total financial assets
3,821
3,821
Financial liabilities
Borrowings
Finance leases
Trade and other payables
(84,602)
(784)
(3,715)
(84,602)
(784)
(3,715)
Total financial liabilities
(89,101)
(89,101)
Net financial liabilities at the end of the year
(85,280)
(85,280)
2013
Financial assets:
Cash and cash equivalents
Trade and other receivables
2,743
3,401
2,743
3,401
Total financial assets
6,144
6,144
Financial liabilities:
Borrowings
Finance leases
Trade and other payables
(56,019)
(383)
(40,810)
(56,019)
(383)
(40,810)
Total financial liabilities
(97,212)
(97,212)
Net financial liabilities at the end of the year
(91,068)
(91,068)
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
112
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35G.
Foreign Currency Risks (Cont’d)
Analysis of amounts denominated in non-functional currency: (Cont’d)
US dollars
US$’000
Total
US$’000
2014
Financial assets:
Cash and cash equivalents
905
905
Financial liabilities:
Trade and other payables
(186)
(186)
Net financial assets at the end of the year
719
719
93
93
(108)
(108)
(15)
(15)
Company
2013
Financial assets:
Cash and cash equivalents
Financial liabilities:
Trade and other payables
Net financial liabilities at the end of the year
There is exposure to foreign currency risk as part of its normal business. In particular, there is significantly exposure to US$
currency risk due to the large value of sales denominated in United States dollars.
Sensitivity analysis:
Group
2014
US$’000
A hypothetical 10% strengthening in the exchange rate of the functional currency
against the US$ would have a favourable effect on pre-tax profit of
Sensitivity analysis:
A hypothetical 10% strengthening in the exchange rate of the functional currency
against the US$ would have a (adverse)/favourable effect on pre-tax profit of
8,528
2013
US$’000
9,107
Company
2014
2013
US$’000
US$’000
(72)
2
The above table shows sensitivity to a hypothetical 10% variation in the functional currency against the relevant non-functional
foreign currencies. The sensitivity rate used is the reasonably possible change in foreign exchange rates. For similar rate
weakening of the functional currency against the relevant foreign currencies above, there would be comparable impacts in the
opposite direction.
In management’s opinion, the above sensitivity analysis is unrepresentative of the foreign exchange risk as the historical
exposure does not reflect the exposures in future.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
113
notes to the financial STATEMENTS
31 December 2014
35.
Financial Instruments: Information on Financial Risks (Cont’d)
35H.
Price Risk
The group is exposed to commodity price risk due to certain factors, such as weather, government policy, level of demand
and supply in the market and the global economic environment resulting from population growth and changes in standards of
living, and global production of similar and competitive crops. During its ordinary course of business, the value of its open sales
and purchase commitments and inventory of raw material changes continuously in line with movements in the prices of the
underlying commodity. To the extent that its open sales and purchase commitments do not match at the end of each business
day, the group will be subject to price fluctuations in the commodities market. Consequently, it is the group’s policy to minimise
the risks arising from the fluctuations in the commodity prices by being partly self-sufficient in CPO and CPKO as this provides
a hedge against such cost fluctuations. To the extent it is unable to do so, the group may minimise such risks through direct
purchases of the similar commodities or through forward purchase and sales contracts. As such, it may also be exposed to
commodity price risk as changes in fair value of forward commodity contracts are recognised directly in the statement of profit
or loss and other comprehensive income.
Decisions to enter into forward purchase and sales contracts must be approved by at least two directors and are currently under
the purview of the group’s chairman and deputy chief executive officer. The group does not enter into forward purchase and
sales contracts for speculative purposes.
36.
Financial Information by Segments
36A.
Information about Reportable Segment Profit or Loss, Assets and Liabilities
Disclosure of information about operating segments, products and services, the geographical areas, and the major customers
are made as required by FRS 108 Operating Segments. This disclosure standard has no impact on the reported results or
financial position of the reporting entity.
For management purposes the reporting entity is organised into the following major strategic operating segments that offer
different products and services: (1) plantation, and (2) logistic & bulking. Such a structural organisation is determined by the
nature of risks and returns associated with each business segment and it defines the management structure as well as the
internal reporting system. It represents the basis on which the management reports the primary segment information that is
available and that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in
assessing the performance. They are managed separately because each business requires different strategies.
The segments and the types of products and services are as follows:
The plantation segment is the group’s main business comprising plantations, palm oil mills, and kernel crushing plants.
The logistics & bulking segment provides support storage facilities and transportation of palm oil products.
Inter-segment sales are measured on the basis that the entity actually used to price the transfers. Internal transfer pricing
policies of the reporting entity are as far as practicable based on market prices. The accounting policies of the operating
segments are the same as those described in the summary of significant accounting policies.
The discontinued operations relate to the disposal of power generation segment (Note 13).
The following tables illustrate the information about the reportable segment profit or loss, assets and liabilities.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
114
notes to the financial STATEMENTS
31 December 2014
36.
Financial Information by Segments (Cont’d)
36B.
Profit or Loss from Continuing and Discontinued Operations and Reconciliations
Group 2014
Revenue by Segment:
Revenue from external customers
Inter-segment sales
Total revenue
Results:
Segment results
Other unallocated items
Share of results of joint ventures
Income tax expense
Plantation
US$’000
Logistics
& Bulking
US$’000
Elimination
US$’000
Total
US$’000
172,350
43,415
4,154
569
–
(43,984)
176,504
–
215,765
4,723
(43,984)
176,504
20,135
(1,562)
–
18,573
(3,072)
(2,338)
(5,585)
Net profit from continuing operations
Loss from discontinued operations, net of tax
7,578
(355)
Profit, net of tax
7,223
Group 2013
Revenue by Segment:
Revenue from external customers
Inter-segment sales
Total revenue
Results:
Segment results
Other unallocated items
Share of results of joint ventures
Income tax income
Net loss from continuing operations
Loss from discontinued operations, net of tax
Loss, net of tax
KENCANA AGRI LIMITED
Plantation
US$’000
Logistics
& Bulking
US$’000
Elimination
US$’000
Total
US$’000
278,911
61,063
5,165
746
(24)
(61,809)
284,052
–
339,974
5,911
(61,833)
284,052
3,160
(2,081)
–
1,079
(7,547)
(2,377)
458
(8,387)
(2,356)
(10,743)
ANNUAL REPORT 2014
115
notes to the financial STATEMENTS
31 December 2014
36.
Financial Information by Segments (Cont’d)
36C.
Assets and Reconciliations
Plantation
US$’000
Logistics &
Bulking
US$’000
Total assets for reportable segments
Cash and cash equivalents
650,295
14,048
4,701
76
Total group assets
664,343
4,777
Plantation
US$’000
Logistics &
Bulking
US$’000
Total assets for reportable segments
Cash and cash equivalents
622,605
13,839
Total group assets
Group 2014
Group 2013
36D.
Power
Generation
US$’000
Elimination
US$’000
Total
US$’000
–
–
(158,125)
–
496,871
14,124
–
(158,125)
510,995
Power
Generation
US$’000
Elimination
US$’000
Total
US$’000
7,056
261
10,864
108
(172,315)
–
468,210
14,208
636,444
7,317
10,972
(172,315)
482,418
Plantation
US$’000
Logistics
& Bulking
US$’000
Power
Generation
US$’000
Elimination
US$’000
Total
US$’000
Liabilities and Reconciliations
Group 2014
Total liabilities for reportable segments
Current tax liabilities
Deferred tax liabilities
Other financial liabilities
Current
Non-current
68,157
2,284
25,568
1,109
65
–
–
–
–
244
(15)
1,545
69,510
2,334
27,113
39,094
197,764
1,341
1,104
–
–
–
–
40,435
198,868
Total group liabilities
332,867
3,619
–
1,774
338,260
Plantation
US$’000
Logistics &
Bulking
US$’000
Power
Generation
US$’000
Elimination
US$’000
Group 2013
Total
US$’000
Total liabilities for reportable segments
Current tax liabilities
Deferred tax liabilities/(assets)
Other financial liabilities
Current
Non-current
82,540
1,919
23,547
1,331
74
–
17,641
216
(1,440)
(16,560)
(9)
1,828
84,952
2,200
23,935
44,286
158,301
1,420
1,780
–
–
–
–
45,706
160,081
Total group liabilities
310,593
4,605
16,417
(14,741)
316,874
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
116
notes to the financial STATEMENTS
31 December 2014
36.
Financial Information by Segments (Cont’d)
36E.
Other Material Items and Reconciliations
Group 2014
Depreciation and amortisation expense
Foreign exchange loss, net
Unrealised loss on forward currency exchange
contracts
Interest expense
Interest income
Loss on disposal of property, plant and
equipment
Gain on fair value changes in biological
assets and other receivables, net
Group 2013
Depreciation and amortisation expense
Foreign exchange loss/(gain), net
Interest expense
Interest income
Loss on disposal of property, plant and
equipment
Gain on fair value changes of biological
assets and other receivables, net
Impairment on trade receivables
KENCANA AGRI LIMITED
Plantation
US$’000
Logistics
& Bulking
US$’000
Power
Generation
US$’000
4,719
4,962
1,146
73
–
–
1,072
272
6,937
5,307
1,717
16,242
(7,067)
–
304
(1)
–
–
–
–
(4,043)
4,486
1,717
12,503
(2,582)
12
–
–
–
12
(6,976)
–
–
–
(6,976)
Elimination
US$’000
Total
US$’000
Plantation
US$’000
Logistics
& Bulking
US$’000
Power
Generation
US$’000
Elimination
US$’000
Total
US$’000
4,199
18,138
16,559
(19,958)
1,149
1,358
601
(1)
624
(57)
1,674
(10)
1,185
3,078
(8,386)
19,426
7,157
22,517
10,448
(543)
28
–
–
–
28
(10,989)
900
–
–
–
–
–
–
(10,989)
900
ANNUAL REPORT 2014
117
notes to the financial STATEMENTS
31 December 2014
36.
Financial Information by Segments (Cont’d)
36F. Geographical Information
Revenue
Non-current assets
2014
US$’000
2013
US$’000
2014
US$’000
2013
US$’000
Indonesia
Singapore
India
Europe
137,507
38,997
–
–
139,563
133,334
10,185
970
452,005
5,420
–
–
403,779
5,527
–
–
Total
176,504
284,052
457,425
409,306
Revenues are attributed to countries on the basis of the customer’s location, irrespective of the origin of the goods and services.
The non-current assets are analysed by the geographical area in which the assets are located. The non-current assets exclude
any financial instruments and deferred tax assets.
37.
Changes and Adoption of Financial Reporting Standards
For the current reporting year the following new or revised Singapore Financial Reporting Standards were adopted. The new or
revised standards did not require any modification of the measurement methods or the presentation in the financial statements.
FRS No.
Title
FRS 27
FRS 27
FRS 28
FRS 36
FRS 39
FRS 110
FRS 110
FRS 111
FRS 112
INT FRS 121
Consolidated and Separate Financial Statements (Amendments to)
Separate Financial Statements (Revised)
Investments in Associates and Joint Ventures (Revised)
Amendments to FRS 36: Recoverable Amount Disclosures for Non-Financial Assets (relating to goodwill) (*)
Amendments to FRS 39: Novation of Derivatives and Continuation of Hedge Accounting
Consolidated Financial Statements
Amendments to FRS 110, FRS 111 and FRS 112
Joint Arrangements
Disclosure of Interests in Other Entities
Levies (*)
(*) Not relevant to the entity.
FRS 111 Joint Arrangements replaces FRS 31 Interests in Joint Ventures. It requires a party to a joint arrangement to determine
the type of joint arrangement in which it is involved by assessing its rights and obligations, and then account for those rights and
obligations in accordance with that type of joint arrangement. Joint arrangements are either joint operations or joint ventures:
(a) In a joint operation, parties have rights to the assets and obligations for the liabilities relating to the arrangement. Joint
operators recognise their assets, liabilities, revenue and expenses in relation to their interest in the joint operation. (b) In a joint
venture, parties have rights to the net assets of the arrangement. A joint venturer applies the equity method of accounting for its
investment in a joint venture in accordance with FRS 28 Investments in Associates and Joint Ventures. Unlike FRS 31, the use of
“proportionate consolidation” is not permitted. FRS 111 is effective for annual periods beginning on or after 1 January 2014 (see
Note 20).
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
118
notes to the financial STATEMENTS
31 December 2014
38.
Future Changes in Financial Reporting Standards
The following new or revised Singapore Financial Reporting Standards that have been issued will be effective in future. The
transfer to the new or revised standards from the effective dates is not expected to result in material adjustments to the financial
position, results of operations, or cash flows for the following year except for the material adjustments as disclosed below.
FRS No.
Title
FRS 19
Amendments To FRS 19: Defined Benefit Plans: Employee Contributions
Improvements to FRSs (Issued in January 2014). Relating to
FRS 102 Share-based Payment (*)
FRS 103 Business Combinations
FRS 108 Operating Segments
FRS 113 Fair Value Measurement
FRS 16 Property, Plant and Equipment
FRS 24 Related Party Disclosures
FRS 38 Intangible Assets (*)
Improvements to FRSs (Issued in February 2014). Relating to
FRS 103 Business Combinations
FRS 113 Fair Value Measurement
FRS 40 Investment Property
Regulatory Deferral Accounts (*)
Amendments to FRS 27: Equity Method in Separate Financial Statements
Amendments to FRS 16 and FRS 38: Clarification of Acceptable Methods
of Depreciation and Amortisation
Amendments to FRS 16 and FRS 41: Agriculture: Bearer Plants
FRS 114
FRS 27
FRS 16,
FRS 38
FRS 16,
FRS 41
FRS 111
FRS 115
FRS 110,
FRS 28
Various
Effective date for
periods beginning
on or after
Amendments to FRS 111: Accounting for Acquisitions of Interests in Joint Operations (*)
Revenue from Contracts with Customers
Amendments to FRS 110 and FRS 28: Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture
Improvements to FRSs (November 2014)
1 Jul 2014
1 Jul 2014
1 Jul 2014
1 Jan 2016
1 Jan 2016
1 Jan 2016
1 Jan 2016
1 Jan 2016
1 Jan 2017
1 Jan 2016
1 Jan 2016
(*) Not relevant to the entity.
Those Singapore Financial Reporting Standards that are expected to have a material impact are as follows:
FRS 41 has been amended. The amendments are effective from 1 January 2016 to be applied retrospectively. Earlier
application is permitted. “Bearer plant” is accounted under FRS 16. The new requirements include bearer plants within the
scope of FRS 16. A bearer plant is defined as a living plant that is used in the production or supply of agricultural produce, is
expected to bear produce for more than one period and has a remote likelihood of being sold as agricultural produce, except for
incidental scrap sales. Accordingly, the amendments require bearer plants to be accounted for as property, plant and equipment
and included within the scope of FRS 16, instead of FRS 41. The produce growing on bearer plants will remain within the
scope of FRS 41. Under FRS 16 the bearer plant is accounted at cost less accumulated depreciation and impairment losses.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
119
notes to the financial STATEMENTS
31 December 2014
38.
Future Changes in Financial Reporting Standards (Cont’d)
On initial adoption the group may elect to measure an item of bearer plants at its fair value at the beginning of the earliest period
presented and use that fair value as its deemed cost at that date. Any difference between the previous carrying amount and fair
value shall be recognised in opening retained earnings at the beginning of the earliest period presented. The group has not yet
assessed the impact of the amendments to FRS 41.
39.
Reclassifications and Comparative Figures
(a) The results of discontinued operations are presented separately in the consolidated statement of profit or loss and
other comprehensive income (see Note 13). A discontinued operation is a component of the business that represents a
separate line of business or geographical area of operations that has been sold, or classified as held for sale or has been
abandoned. The comparative figures are restated to reclassify them from continuing to discontinued operations.
(b) Certain reclassifications have been made to the prior year’s financial statements to enhance comparability with current
year’s financial statements. The reclassifications are as follows:
After
reclassification
US$’000
Before
reclassification
US$’000
Difference
US$’000
Consolidated Statement of Cash Flows:
Cash Flows From Operating Activities
Net Effect of Exchange Rate Changes in Consolidating Entities
13,170
(53,701)
66,871
Cash Flows From Investing Activities
Net Effect of Exchange Rate Changes in Consolidating Entities
–
97,292
(97,292)
Cash Flows From Financing Activities
Net Effect of Exchange Rate Changes in Consolidating Entities
–
(30,421)
30,421
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
120
notes to the financial STATEMENTS
31 December 2014
40.
Listing of and Information on Subsidiaries
#A. The following subsidiaries are wholly owned by the group:
Name of subsidiaries, country of incorporation, place of operations and
principal activities (and independent auditor)
Kencana Bio-Energy Pte. Ltd. (“KB”)
Singapore
Investment holding
(a) (c)
Cost in books
of company
2014
2013
US$’000
US$’000
–
20
315
315
2,043
2,043
10,603
10,603
12,961
12,981
Disposed on 21 March 2014
Kencana Logistics Pte. Ltd. (“KL”) (a)
Singapore
Investment holding
Kencana Plantations Pte. Ltd. (“KP”) (a)
Singapore
Investment holding
Sawindo Agri Pte. Ltd. (“SA”) (a)
Singapore
Trading and investment holding
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
121
notes to the financial STATEMENTS
31 December 2014
40.
Listing of and Information on Subsidiaries (Cont’d)
#B.
The following subsidiaries are held through the above subsidiaries:
Name of subsidiaries, country of incorporation, place of operations and principal activities (and independent
auditor)
PT Agri Eastborneo Kencana (“AEK”) (b)
Indonesia, Agribusiness
PT Agro Inti Kencanamas (“AIK”)
Indonesia, Agribusiness
(b)
PT Agrojaya Tirta Kencana (“ATK”)
Indonesia, Agribusiness
PT Agro Mas Lestari (“AML”)
Indonesia, Agribusiness
(b)
(b)
PT Agro Sawit Mas Lestari (“ASML”)
Indonesia, Agribusiness
PT Alamraya Kencana Mas (“AKM”)
Indonesia, Agribusiness
(b)
(b)
PT Bumi Permai Sentosa (“BPS”) (b)
Indonesia, Wholesaler of shipping-related products
PT Delta Subur Permai (“DSP”)
Indonesia, Agribusiness
PT Indotrust (“IDT”)
Indonesia, Bulking
(b)
(b)
PT Karunia Alam Makmur (“KAM”)
Indonesia, Agribusiness
(b)
PT Kencana Agro Jaya (“KAJ”) (b)
Indonesia, Agribusiness
PT Langgeng Nusa Makmur (“LNM”) (b)
Indonesia, Agribusiness
PT Palm Makmur Sentosa (“PMKS”) (b)
Indonesia, Agribusiness
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
122
notes to the financial STATEMENTS
31 December 2014
40.
Listing of and Information on Subsidiaries (Cont’d)
#B.
The following subsidiaries are held through the above subsidiaries (Cont’d):
Name of subsidiaries, country of incorporation, place of operations and principal activities (and independent
auditor)
PT Pelayaran Asia Marine (“PAM”)
Indonesia, Logistics
(b)
PT Sawindo Cemerlang (“SCEM”) (b)
Indonesia, Agribusiness
PT Sawindo Kencana (“SWK”)
Indonesia, Agribusiness
(b)
PT Sawit Alam Permai (“SAP”)
Indonesia, Agribusiness
(b)
PT Sawit Kaltim Lestari (“SKL”)
Indonesia, Agribusiness
(b)
PT Sawit Permai Lestari (“SPL”) (b)
Indonesia, Wholesaler of plantation-related products
PT Sawit Tiara Nusa (“STN”) (b)
Indonesia, Agribusiness
PT Wira Mas Permai (“WMP”)
Indonesia, Agribusiness
(b)
PT Wira Palm Mandiri (“WPM”) (b)
Indonesia, Wholesaler of plantation-related products
PT Wira Sawit Mandiri (“WSM”)
Indonesia, Agribusiness
KENCANA AGRI LIMITED
(b)
ANNUAL REPORT 2014
123
notes to the financial STATEMENTS
31 December 2014
40.
Listing of and Information on Subsidiaries (Cont’d)
#C.
The subsidiaries that have non-controlling interest are listed below:
Name of subsidiaries, country of incorporation, place of operations
and principal activities (and independent auditor)
Effective percentage of
equity held by group
2014
%
2013
%
PT Cahaya Permata Gemilang (“CPG”) (b)
Indonesia, Wholesaler of electricity-related products
Disposed on 21 March 2014.
–
95
PT Listrindo Kencana (“LK”) (b)
Indonesia, Power generation
Disposed on 21 March 2014
–
95
PT Belitung Energy (“BE”) (b)
Indonesia, Power generation
Disposed on 21 March 2014
–
95
(a)
Audited by RSM Chio Lim LLP, a member of RSM International.
(b)
Audited by a member firm of RSM International of which RSM Chio Lim LLP in Singapore is a member. The name of the
member firm is RSM AAJ Associates, Jakarta.
(c)
The subsidiary was divested on 21 March 2014. See Note 13.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
124
INFORMATION ON SHAREHOLDINGS
As at 17 March 2015
Issued and fully paid capital
Number of shares
Class of shares
Voting rights
:
:
:
:
SGD 133,451,118
1,148,044,720
ordinary shares
one vote per share
Distribution of shareholdings
SIZE OF SHAREHOLDINGS
NO. OF SHAREHOLDERS
%
NO. OF SHARES
%
3
0.19
107
0.00
1 - 99
100 - 1,000
39
2.50
35,300
0.00
1,001 - 10,000
622
39.90
4,298,803
0.38
10,001 - 1,000,000
854
54.78
70,868,980
6.17
1,000,001 AND ABOVE
TOTAL
41
1,559
2.63
100.00
1,072,841,530
1,148,044,720
93.45
100.00
Shareholding held by the public
Based on the information available to the Company as at 17 March 2015, approximately 21.83% of the issued ordinary shares of the
Company is held by the public and, therefore, Rule 723 of the Listing Manual issued by the Singapore Exchange Securities Trading
Limited is complied with.
Substantial shareholders
Name of shareholders
No. of shares
Kencana Holdings Pte. Ltd.
Newbloom Pte. Ltd.
Wilmar International Limited(1)
Henry Maknawi(2)
610,220,896
229,608,944
7,099,880
Direct interest
% of shares
53.15
20.00
0.62
Deemed interest
No. of shares
% of shares
229,608,944
610,220,896
20.00
53.15
Notes :(1)Wilmar International Limited is deemed to be interested in the shares held by Newbloom Pte. Ltd. by virtue of its 100%
shareholding interest in Newbloom Pte. Ltd..
(2)
Mr Henry Maknawi is deemed to be interested in the shares held by Kencana Holdings Pte. Ltd. by virtue of his 43.41%
shareholding interest in Kencana Holdings Pte. Ltd..
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
125
INFORMATION ON SHAREHOLDINGS
As at 17 March 2015
Top twenty shareholders
NO.
NAME
NO. OF SHARES
%
1
KENCANA HOLDINGS PTE LTD
610,220,896
53.15
2
NEWBLOOM PTE LTD
229,608,944
20.00
3
CITIBANK NOMINEES SINGAPORE PTE LTD
31,077,000
2.71
4
DBS VICKERS SECURITIES (SINGAPORE) PTE LTD
22,913,960
2.00
5
DBS NOMINEES (PRIVATE) LIMITED
20,035,520
1.75
6
PHILLIP SECURITIES PTE LTD
13,884,000
1.21
7
RAFFLES NOMINEES (PTE) LIMITED
12,002,000
1.05
8
HSBC (SINGAPORE) NOMINEES PTE LTD
11,200,000
0.98
9
SUSANTO AMIN @ LIM HWA MIN
10,709,000
0.93
10
MORPH INVESTMENTS LTD
10,075,000
0.88
11
SOEKARTO
8,677,520
0.76
12
HENRY MAKNAWI
7,099,880
0.62
13
RHB SECURITIES SINGAPORE PTE. LTD.
6,610,000
0.58
14
DICKY PERMANA
6,384,360
0.56
15
OCBC SECURITIES PRIVATE LIMITED
6,077,000
0.53
16
SOEPRAPTO
5,745,920
0.50
17
KGI FRASER SECURITIES PTE. LTD.
5,609,000
0.49
18
WONG SHAW SENG REGI
5,065,000
0.44
19
CIMB SECURITIES (SINGAPORE) PTE. LTD.
4,906,000
0.43
20
ARIFIN @ LIE TJONG TJIN @ LIE CHANG CHIN
4,700,000
0.41
1,032,601,000
89.98
TOTAL
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
126
notice of annual general meeting
NOTICE IS HEREBY GIVEN that the 2015 Annual General Meeting of the members of the Company will be held at Coleman Room,
Level 1, Grand Park City Hall, 10 Coleman Street, Singapore 179809 on 24 April 2015 at 11:00 a.m. to transact the following
businesses:
AS ORDINARY BUSINESS
1.
To receive and adopt the audited financial statements of the Company and the Reports of the Directors
and Auditors for the year ended 31 December 2014.
Resolution 1
2.
To re-elect the following director retiring pursuant to the Company’s Articles of Association:
Resolution 2
Mr Henry Maknawi (Article 91)
3.
To re-elect the following director retiring pursuant to the Company’s Articles of Association:
Resolution 3
Mr Kent Surya (Article 91)
4.
To re-elect the following director retiring pursuant to Section 153 of the Companies Act, Cap. 50:
Resolution 4
Mr Soh Yew Hock
Mr Soh Yew Hock shall, upon re-election as Director of the Company, remain as Chairman of the Audit
& Risk Management Committee, a member of the Remuneration Committee and a member of the
Nominating Committee. Mr Soh Yew Hock shall be considered independent for the purpose of Rule
704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited.
5
To re-elect the following director retiring pursuant to Section 153 of the Companies Act, Cap. 50:
Resolution 5
Tengku Alwin Aziz
Tengku Alwin Aziz shall, upon re-election as Director of the Company, remain as Chairman of the
Nominating Committee, a member of the Audit & Risk Management Committee and a member of the
Remuneration Committee. Tengku Alwin Aziz shall be considered independent for the purpose of Rule
704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited.
6.
To approve the Directors’ fees of SGD198,000 for the year ended 31 December 2014.
Resolution 6
7.
To re-appoint RSM Chio Lim LLP as the Auditors for the ensuing year and to authorise the Directors to
fix their remuneration.
Resolution 7
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
127
notice of annual general meeting
AS SPECIAL BUSINESS
To consider and, if thought fit, to pass the following Resolutions as Ordinary Resolutions, with or without amendments:
8.
Proposed Share Issue Mandate
Resolution 8
“That pursuant to Section 161 of the Companies Act, Cap. 50. and Rule 806 of the Listing Manual of the
Singapore Exchange Securities Trading Limited (“SGX-ST”), the Directors of the Company be authorized
and empowered to:
(a)
(i)
allot and issue shares in the Company (“shares”) whether by way of rights, bonus or
otherwise; and/or
(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or
would require shares to be issued, including but not limited to the creation and issue
of (as well as adjustments to) options, warrants, debentures or other instruments
convertible into shares,
at any time and upon such terms and conditions and for such purposes and to such persons as
the Directors of the Company may in their absolute discretion deem fit; and
(b)
(notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue
shares in pursuance of any Instrument made or granted by the Directors of the Company while
this Resolution was in force,
provided that:
(1)
the aggregate number of shares (including shares to be issued in pursuance of the Instruments,
made or granted pursuant to this Resolution) to be issued pursuant to this Resolution shall not
exceed fifty per centum (50%) of the total number of issued shares (excluding treasury shares)
in the capital of the Company (as calculated in accordance with sub-paragraph (2) below), of
which the aggregate number of shares and Instruments to be issued other than on a pro rata
basis to existing shareholders of the Company shall not exceed twenty per centum (20%) of
the total number of issued shares (excluding treasury shares) in the capital of the Company (as
calculated in accordance with sub-paragraph (2) below);
(2)
(subject to such calculation as may be prescribed by the SGX-ST) for the purpose of
determining the aggregate number of shares that may be issued under sub-paragraph (1)
above, the total number of issued shares (excluding treasury shares) shall be based on the total
number of issued shares (excluding treasury shares) in the capital of the Company at the time of
the passing of this Resolution, after adjusting for:
(a)
new shares arising from the conversion or exercise of any convertible securities;
(b)
new shares arising from exercising share options or vesting of share awards which are
outstanding or subsisting at the time of the passing of this Resolution; and
(c)
any subsequent bonus issue, consolidation or subdivision of shares;
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
128
notice of annual general meeting
(3)
in exercising the authority conferred by this Resolution, the Company shall comply with
the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such
compliance has been waived by the SGX-ST) and the Articles of Association of the Company;
and
(4)
unless revoked or varied by the Company in a general meeting, such authority shall continue in
force until the conclusion of the next Annual General Meeting of the Company or the date by
which the next Annual General Meeting of the Company is required by law to be held whichever
is earlier.
See Explanatory Note (i)
9.
PROPOSED RENEWAL OF A SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON
TRANSACTIONS
Resolution 9
“THAT:-
10.
(a)
approval be and is hereby given for the Company, its subsidiaries and associated companies or
any of them to enter into any of the transactions falling within the categories of interested person
transactions set out in Section 2.1.2 of the Appendix to the Annual Report dated 9 April 2015
(the “Appendix”), with any party who is of the class or classes of interested persons described
in Section 2.2 of the Appendix, provided that such transactions are made on normal commercial
terms in accordance with the review procedures for interested person transactions as set out in
Section 2.5 of the Appendix (the “IPT Mandate”);
(b)
the IPT Mandate shall, unless revoked or varied by the Company in general meeting, continue to
be in force until the conclusion of the next Annual General Meeting of the Company;
(c)
the Audit & Risk Management Committee of the Company be and is hereby authorised to take
such action as it deems proper in respect of procedures and/or to modify or implement such
procedures as may be necessary to take into consideration any amendment to Chapter 9 of the
Listing Manual which may be prescribed by Singapore Exchange Securities Trading Limited from
time to time; and
(d)
the Directors of the Company and each of them be and are hereby authorised and empowered
to complete and to do all such acts and things, and to approve, modify, ratify and execute such
documents, acts and things as they, he or she may consider necessary, desirable or expedient
to give effect to the abovementioned resolutions.”
To transact any other business which may be properly transacted at an Annual General Meeting.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
129
notice of annual general meeting
Explanatory Note:
(i)
The proposed Resolution 8 above, if passed, will empower the Directors of the Company, effective until the conclusion of
the next Annual General Meeting of the Company, or the date by which the next Annual General Meeting of the Company is
required by law to be held or such authority is varied or revoked by the Company in a general meeting, whichever is the earlier,
to issue shares, make or grant instruments convertible into shares and to issue shares pursuant to such instruments, up to
a number not exceeding, in total, 50% of the total number of issued shares (excluding treasury shares) in the capital of the
Company, of which up to 20% may be issued other than on a pro-rata basis to shareholders.
By Order Of the Board
Phillip Lim Lian Teng
Company Secretary
Date : 9 April 2015
Notes:
(a)
A member entitled to attend and vote at this meeting is entitled to appoint not more than two proxies to attend and vote in his
stead. A proxy need not be a member of the Company.
(b)
If a proxy is to be appointed, the form must be deposited at the registered office of the Company at 36 Armenian Street #03-02
Singapore 179934 not less than 48 hours before the meeting.
(c)
The form of proxy must be signed by the appointor or his attorney duly authorised in writing.
(d)
In the case of joint shareholders, all holders must sign the form of proxy.
Personal Data Privacy:
By submitting an instrument appointing a proxy(ies) and/or representatives to attend, speak and vote at the AGM and/or any
adjournment thereof, a member of the Company (i) consents to the collection, use and disclosure of the member’s personal data
by the Company (or its agents) for the purpose of the processing and administration by the Company (or its agents) of proxies and
representatives appointed for the AGM (including any adjournment thereof) and the preparation and compilation of the attendance lists,
minutes and other documents relating to the AGM (including any adjournment thereof), and in order for the Company (or its agents) to
comply with any applicable laws, listing rules, regulations and/or guidelines (collectively, the “Purposes”), (ii) warrants that where the
member discloses the personal data of the member’s proxy(ies) and/or representative(s) to the Company (or its agents), the member
has obtained the prior consent of such proxy(ies) and/or representative(s) for the collection, use and disclosure by the Company (or its
agents) of the personal data of such proxy(ies) and/or representative(s) for the Purposes, and (iii) agrees that the member will indemnify
the Company in respect of any penalties, liabilities, claims, demands, losses and damages as a result of the member’s breach of
warranty.
KENCANA AGRI LIMITED
ANNUAL REPORT 2014
This page has been intentionally left blank.
KENCANA agri lIMITED
IMPORTANT
Registration No. 200717793E
(Incorporated in Singapore)
1. This Annual Report is also forwarded to investors who have used their
CPF monies to buy shares in the Company at the request of their
CPF Approved Nominees, and is sent solely for their information only.
2. The Proxy form is, therefore, not valid for use by CPF investors and
PROXY FORM
(Please see notes overleaf before completing this form)
shall be ineffective for all intents and purposes if used or purported to
be used by them.
I/We
of
being a member(s) of KENCANA AGRI LIMITED (the “Company”), hereby appoint
Name
Address
NRIC/Passport
Number
Proportion of
Shareholdings
and/or (delete as appropriate)
Name
Address
NRIC/Passport
Number
Proportion of
Shareholdings
as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and if necessary, to demand a poll at the 2015 Annual
General Meeting of the Company to be held at Coleman Room, Level 1, Grand Park City Hall, 10 Coleman Street, Singapore 179809 on
Friday, 24 April 2015 at 11:00 a.m. and at any adjournment thereof.
(Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for or against the resolutions as set out in
the notice of Annual General Meeting. In the absence of specific directions, the proxy/proxies will vote or abstain as he/they may think
fit, as he/they will on any other matter arising at the Annual General Meeting.)
No.
Resolutions
For
1
Directors’ Report and Audited Accounts for the year ended 31 December 2014
2
Re-election of Mr Henry Maknawi as Director
3
Re-election of Mr Kent Surya as Director
4
Re-election of Mr Soh Yew Hock as Director
5
Re-election of Tengku Alwin Aziz as Director
6
Approval of Directors’ fees for the year ended 31 December 2014
7
Re-appointment of RSM Chio Lim LLP as Auditors
8
Proposed Share Issue Mandate
9
Proposed renewal of a Shareholders’ Mandate for Interested Person Transactions
Dated this
day of
Against
2015

Total number of Shares held
Signature(s) of member(s) or common seal
IMPORTANT: PLEASE READ NOTES OVERLEAF
NOTES:
1.
Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register
(as defined in Section 130A of the Companies Act, Chapter 50), you should insert that number of shares. If you have shares
registered in your name in the Register of Members, you should insert that number of shares. If you have shares entered
against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert
the aggregate number of shares. If no number is inserted, this form of proxy will be deemed to relate to all the shares held by
you.
2.
A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint not more than two
proxies to attend and vote on his behalf. A proxy need not be a member of the Company.
3.Where a member appoints more than one proxy, he shall specify the proportion of his shareholding to be represented by each
proxy.
4.
The instrument appointing a proxy or proxies must be under the hand of the appointor or his attorney duly authorised in writing.
Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its common
seal or under the hand of its attorney or duly authorised officer.
5.
A corporation which is a member of the Company may authorise by resolution of its directors or other governing body such
person as it thinks fit to act as its representative at the Annual General Meeting, in accordance with its Articles of Association
and Section 179 of the Companies Act, Chapter 50.
6.
The instrument appointing a proxy or proxies, together with the power of attorney or other authority (if any) under which it is
signed, or notarially certified copy thereof, must be deposited at the registered office of the Company at 36 Armenian Street
#03-02 Singapore 179934 not later than 48 hours before the time set for the Annual General Meeting.
7.
The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed
or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in
the instrument appointing a proxy or proxies. In addition, in the case of members of the Company whose shares are entered
against their names in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if
such members are not shown to have shares entered against their names in the Depository Register at 48 hours before the time
appointed for holding the Annual General Meeting as certified by The Central Depository (Pte) Limited to the Company.
Personal Data Privacy:
By submitting an instrument appointing a proxy(ies) and/or representative(s), the member accepts and agrees to the personal data
privacy terms set out in the Notice of Annual General Meeting dated 9 April 2015.